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Is a secured personal loan right for you?

Credit Simple — Thu, 30 Jan 2020 04:35:11 +0000

A secured personal loan is a personal loan in which you offer up an asset as collateral, essentially guaranteeing you’ll pay the loan off. If you don’t pay, the lender can take possession of that asset (in this case, known as the security) and sell it off to recoup their money.

The most common type of secured personal loan is a car loan, where the car you’re buying is also the asset that secures the loan.

Why take out secured personal loan?

There are several reasons why you may want to take out a secured personal loan vs. an unsecured personal loan (a loan in which you don’t need to offer collateral). These include:

You want a lower rate. Lenders usually set their interest rates according to how risky you are as a borrower. With collateral in the picture, you become less risky and can often obtain better rates.
You’re having a hard time getting approved. If you have a low credit score and won’t otherwise be approved for your loan, offering up an asset as security can help get you over the line.
You want to borrow more or take longer to pay it off. Again, having security in the picture often gives lenders confidence to be a little more accommodating with the loan terms and other specifics.

Compare secured and unsecured personal loans

What can you use as security on a secured loan?

It’s ultimately up to the lender to decide what they’ll accept as security. Here’s a list of items that are sometimes used:

Vehicles
Home equity
Jewelry
Art
Monetary assets (e.g. term deposits)

There may also be some additional requirements pertaining to specific assets. For example, your lender might only accept cars under 7 years old.

Be sure to check with your lender about what types of assets they’ll accept and if there are any additional requirements relating to those assets.

Interest rates on secured loans

Just like most loans, you can find secured loans with either a variable or fixed interest rate. Here’s the difference between the two.

Fixed rate. The interest rate remains the same for the life of the loan.
Variable rate. The interest rate can fluctuate over time, usually patterning the official RBA rate.

A fixed interest rate will usually be higher than a variable interest rate at the beginning of the loan term but it also comes with more certainty on the interest that you pay throughout the life of the loan.

Secured loan fees

Lenders can choose what, if any, fees to charge you on a secured loan. The most common fees you may encounter are:

Establishment fee. A one-time fee to the lender for setting up the account.
Administration fees. An ongoing fee (i.e. monthly) for keeping the account active.
Early repayment fee. A one-time fee to the lender for re-processing a loan that you pay off early.
Break costs. A one-time charge by the lender based on the money they lose when you pay off a fixed-rate loan early.
Other fees. These can include late-payment fees, direct-debit dishonour fees and document request fees.

Should you choose a secured loan or an unsecured loan?

A secured loan works best for people who can’t take out a loan otherwise, due to bad credit or other financial reasons. It will improve your chances of being approved and to possibly get better rates.

The downside of a secured loan is that you risk losing the asset that you have offered as security to the lender if you are unable to meet your repayments.

That’s why going for an unsecured loan can be the better choice in many cases. If you have a good credit score, you can often get an attractive loan with favourable rates and terms – without risking your assets.

You can get free access to your illion credit score and file any time you want using Credit Simple.

The information in this article is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal, financial, and other professional advice.

The post Is a secured personal loan right for you? appeared first on Credit Simple.

Managing your finances when life throws you a curveball

Credit Simple — Fri, 24 Jan 2020 02:39:06 +0000

Occasionally life will throw you a curveball that directly or indirectly impacts your finances: you’re made redundant, your furnace dies or you’re expecting a child and you realise you’ll need to upgrade homes in the not-too-distant future.

The last thing you want is to dig yourself into a deeper hole because you weren’t able to manage the financial side of things.

Here are some ways to avoid that, so that you can bounce back sooner rather than later.

1. Put your spending on lockdown.

The first thing to do is to stop spending more than is necessary. Some of the easiest ways to do that without disrupting your lifestyle too much include:

Cancelling any unnecessary subscriptions. With so many online providers charging a subscription fee these days, there are bound to be some you can cancel or temporarily shut off. Keep the Netflix subscription if you love movies or the Spotify subscription if you love music, but nix the rest if you can.
Cutting back on the luxuries. Temporarily swapping a movie night in for a night at the cinema or swapping organic groceries for the non-organic kind can save you some money without disrupting your lifestyle too much.

2. Review your budget (or create one for the first time).

We’re big proponents of creating a budget so if you haven’t created one yet, now’s the time to get onto it.

Even if you already have a budget in place, now’s a good time to revisit it.

If there’s anything this situation can teach you, it’s that your financial situation doesn’t stay the same forever. Pull your budget back out for a re-review and see if there is anywhere else you can cut back.

3. Check your financial institutions’ financial hardships policies.

If you’re having a hard time making ends meet even after tightening your belt, you may want to reach out to your bank, lenders, utility companies and anyone else you owe money to.

They’ll often have financial hardship policies that will temporarily halt your payments or reduce them, so that you can continue to meet your obligations and avoid late fees and defaults. After all, the last thing you want to do is make a difficult situation worse by going even deeper into unnecessary debt.

4. Cash out your rewards points.

If you have any rewards programs like frequent flyer points or credit card rewards , you may have the option to convert your points to cash or use them like cash toward your next credit card payment.

Using points for cash usually doesn’t go as far as using them toward merchandise or flights, but it may be worth it if you need to “buy” yourself another month or two.

5. Make minimum payments where it makes sense.

When life throws you a financial curveball, it often makes sense to hang onto as much cash as possible so that you can pay any additional unexpected bills that crop up. For example, if your best friend (aka, your dog) has emergency surgery, you’ll probably want some cash handy for any unexpected prescriptions during the recovery phase.

That means it might make sense to reduce loan payments to the minimum due so that you don’t find yourself back to square one when yet another bill comes knocking.

6. Get help.

If you find that your financial situation is more than you can handle alone, there are organisations that can help, like National Debt Helpline or various state-based debt advice services. You can find a comprehensive list of these services here.

Stay strong

We all experience situations that test our finances at one time or another – often multiple times throughout our lives. The key is to take strong action to keep the financial hit from spiraling out of control.

And if you do find that such situations test your mettle a little too much, it’s never too late to start thinking about a curveball account (perhaps better known as an emergency fund). This is a savings account specifically set up to help you through times like this.

That way next time, it’ll be just that little bit easier.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post Managing your finances when life throws you a curveball appeared first on Credit Simple.

7 ways to save money this holiday season

Credit Simple — Wed, 11 Dec 2019 06:17:29 +0000

Here are a few tips to help you ring in the new decade with as little debt as possible.

1. Reconsider whom you need to shop for

At different points in our lives, it makes sense to shop for certain people and not for others. For example, when our nieces and nephews are young, gifts are appropriate but when they’re adults, maybe a heartfelt card is enough.

Go through your list and decide whom you really need to shop for and who can make do with a heartfelt holiday wish.

2. Set yourself a limit – and stick to it

Now that you know who you need to shop for, set yourself a budget based on what you can reasonably afford. Set aside one “money bucket” for gifts, remembering to factor in the cost of wrapping paper, tape, greeting cards and the like

Consider a separate money bucket for food, drinks and entertainment. This includes eating out, coffees, treats, parties, costumes and movie outings.

Once you have your budget, stick to it. The whole point is to spend only what you can afford to spend.

3. Consider what people actually need

It’s often the case that people don’t really need, or even want, new expensive gadgets in their lives. If you consider what each person really needs, you may uncover creative and inexpensive ways to fill their holidays with cheer.

Maybe you can surprise your nostalgic mother by transforming all your old childhood photos into a digital scrapbook, or give your achy partner a massage based on a technique you learned from YouTube.

4. Shop online

If you do end up with a few physical goods on your to-buy list, consider buying them online. Not only can you often find better deals, but you’re also less likely to incur unexpected or hidden expenses like petrol, parking, eating out, that special gift to yourself and all those pumpkin gingerbread lattes.

But online shops want your dough just as much as brick and mortar shops do, so make sure you don’t get sucked into all the online sales and marketing gimmicks.Make sure you shop around for the best deals and buy only what’s on your list.

5. Do a Secret Santa

Secret Santas aren’t just for the office and the school yard; they’re great for families too. So if you really want to save money this holiday season, and help others do the same, consider a great big Secret Santa.

Ask everyone to write down their name on a slip of paper, along with two or three items they need (or they can simply write “surprise me!”) and throw those into a hat. This way, everyone can save a little money and no one is left with a useless gift they’ll just toss later.

6. Go potluck

There’s nothing wrong with wanting to entertain guests at your home over Christmas or New Year’s Eve. However, there’s no reason to splurge on all the food yourself. If you decide to throw a party, go ahead and cook a couple of your specialty dishes, but ask all your guests to bring something too.

7. Spend New Years in

You don’t need us to tell you how expensive it can be to pay for food, drinks and cover charges just to attend a fancy New Year’s party. Why not hang some mistletoe at home and have your party there?

You won’t have to put up with obnoxious strangers and you won’t have to stand on milk crates to see the fireworks on your big screen and most importantly food and drinks will be a fraction of the price.

Eat, save and be merry!

With some foresight and a little self-control, you can get through these holidays without burying yourself into a pile of debt you’d otherwise spend the next year digging yourself out of.

The post 7 ways to save money this holiday season appeared first on Credit Simple.

Young, single, and on a budget? Skip the mistakes that others make

Credit Simple — Thu, 23 Mar 2017 00:08:22 +0000

You’re young, single and on a budget. It’s hard being a ‘yadult’ sometimes. But life’s a lot more fun if you’re not stressing about the power being cut off. Take some tips from others’ mistakes and skip the ‘shoulda known better’ stage of your financial future. Here’s how:

Have a spending plan. That’s a budget, but if you think of it as spending plan it doesn’t feel like a torture device. The idea is that you get a pen and paper or spreadsheet out, start with what you earn and divvy it up into important categories such as rent, food, transport, utilities, insurance and saving. Then split what’s left into nice-to-have categories. Track your actual spend each week and put your cards away as soon as a category is empty.

Spend within your means. Try to live in a ‘less is more’ way. Cherish a few nice things, but don’t feel the need to buy everything. Consider purchasing quality over quantity – but beware of using this as an excuse to buy something you don’t need.

Set financial goals. You don’t need to be thinking about what you’ll do when you’re 50. Instead set baby steps such as a date when you want to be debt free, for example, and work back from that.

Start saving now. We know you think you earn nothing. Ten per cent of nothing is nothing. So at least put that away. Put three per cent in a savings account you can’t touch so you have a ready-made home deposit when you want it. The other seven percent should go into an emergency fund first and then short and medium term savings. The reason for the emergency fund is so that you’re not paying 19.99% interest on top of grudge purchases such as fixing the car.

Pay all your bills. Rent, power, phone, water, and other utilities are essentials in life. Why not pay it before they’re due to save the stress and help your credit record. The opposite can make it difficult to get credit when you really need to.

Remember the consequences of student debt. How much of your available cash as a student was spent on booze and/or partying? It’s very easy to borrow money for ‘living expenses’ that really are for non-essentials. Yes it’s fun to party. But set yourself limits so that you don’t have to waste years of your life paying it back.

Know the difference between good debt and ‘dumb’ debt. Put simply, good debt is debt that gets you ahead financially. That’s debt such as a student loan providing your degree really will help you earn more, a business loan, a mortgage, and if you really do need a car to get to work the smallest car loan possible. Bad debt is the debt owed on the partying element of your student days, and money spent on anything that goes down in value such as TVs, mag wheels, the latest smartphone, and so on. By all means buy these things. But pay for them from short-term savings.

Rent less house. Can you share with others? Is there a cheaper option? Rent is dead money. The sooner you can save and buy a modest flat or apartment the better. Where there’s a will there is a way.

Get insurance. The reality is that most insurance companies do make a profit out of you, but they pay the vast majority of claims. Having no contents and car insurance in particular is a no-no because you could easily lose everything you’ve ever saved for in one fell swoop. It just takes an earthquake, fire, or smashing into an expensive car to do it.

Think big on the career front. Just like your money, set yourself a career plan. Find a mentor who can help you work through what a future in your industry looks like and have a strategy for how you’re going to get to the next step .

Watch out for STDs – that’s sexually transmitted debts. You should know your partner’s finances as well as you know your own. Joint finances can mean joint debts. Be very wary of who you hook up with before it’s too late.

As a final word: you can do it. Choose the positive path and start by making one change at a time.

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