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Are personal loans better than mortgages?
A personal loan is a type of secured or unsecured loan that typically have terms ranging from six to 60 months. Some personal loans are for specific purposes, such as an auto loan, while others may be multipurpose.
Are personal loans better than mortgages?
A personal loan is a type of secured or unsecured loan that typically have terms ranging from six to 60 months. Some personal loans are for specific purposes, such as an auto loan, while others may be multipurpose.
A mortgage, on the other hand, is a property loan in which the purchased property is used as a security. Borrowers are required to pay the debt with a predetermined set of payments within an agreed period – typically 25 to 30 years.
Should you fall behind or default on your mortgage, the lender has the right to take the purchased property.
Which is better: personal loan or mortgage?
The most important thing to consider when choosing between a personal loan and a mortgage is what you’ll use the borrowed money on.
Compared with a mortgage, the amount you can borrow for a personal loan is much smaller. Hence, if you plan to buy a property, applying for a mortgage should be your choice. But if you’re simply spending for repairs, renovations or a variety of expenses to make your property beautiful, taking out a personal loan is more sensible.
What can I use a personal loan for?
What you use a personal loan for depends on the type of loan you applied for.
There are some specific-use personal loans, such as auto loans and debt consolidation loans. For specific-use loans, it goes without saying that you should only use the money for its intended use.
However, there are also multipurpose loans that allow you to decide how to use the borrowed money. The only condition is to ensure that you meet repayments until it is fully paid.
How can I get a loan?
To get a loan, you first need to ensure that you are eligible to apply for one.
To be eligible, you must:
- Be an Australian citizen or permanent resident*
- Be at least 18 years old
- Not be bankrupt
- Have a regular income (amount varies)
- Have an Australian bank account (if money will be paid out directly to your account)
*Temporary residents may also apply for a personal loan, but lenders have additional criteria to become eligible.
What can I do to apply?
It’s recommended to shop around and compare loan terms and providers before applying for a loan because a rejection will negatively impact your credit score.
If you have any questions about the loan, such as interest rates, repayments or conditions, make sure to get clarifications before making a formal application.
If you have done this and selected a lender and appropriate loan for your needs, get a checklist of requirements for application.
Prepare all the necessary documents and information and submit them to the lender. After this, you only need to wait. The lender may decide whether to reject or approve your application or will ask for additional documents for further deliberation.
How are loan repayments calculated?
To estimate the amount of interest you will potentially pay on a loan each payment period, you need to know your interest rate and the frequency of payment (i.e. monthly, fortnightly, etc.).
For the first payment, you may use this formula:
Interest = loan principal x (interest rate per annum ÷ number of payments)
For succeeding payments wherein a portion of the principal loan amount has been paid off, you need to compute for your new balance using this formula:
New balance = loan principal - (previous repayment - interest)
And with your new balance, use the first formula again.
Explore nestegg for more information about loans.
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