loans Archives - Credit Simple

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.

Debt consolidation loan vs. balance transfer credit card – which one to choose?

Credit Simple — Mon, 06 Jan 2020 04:54:25 +0000

When you consolidate your debt, you are essentially taking out one large loan and using that money to pay off two or more smaller debts.

The two major ways you can do this is by applying for a balance transfer (BT) credit card or taking out a debt consolidation loan.

This guide explores why you’d want to consolidate debt in the first place and then looks at your two options to help you determine which one is right for you.

Why would you want to consolidate debt?

Consolidating your debt offers several key benefits:

It streamlines your paperwork and payments. With one loan instead of several, you don’t have to keep track of multiple bills, due dates and fee schedules.
You could save on interest and fees. Consolidating gives you the opportunity to shop around for a loan offering better rates and fees than your current loans.
You could get a special deal. Many balance transfer credit cards will offer you a temporary interest-free period on the amount you’ve transferred from other loans.

What options are available to consolidate debt?

The following sections describe your two main options for consolidating debt: balance transfer credit cards and debt consolidation loans.

A balance transfer credit card

Balance transfer credit cards are cards you can use to pay off your other debts in full and then continue to use it just like any other credit card. They often come with an introductory offer that lets you pay 0% interest rate on your “transfers” for a period of time.

Other than the introductory offer, interest rates on balance transfer credit cards tend to be higher than those on debt consolidation .

That means this option is best suited to someone who is consolidating relatively small loans and plans to pay them off quickly (i.e. during the 0% introductory period).

Note:

Watch out for balance transfer fees. One card might offer a longer 0% introductory period but charge a balance transfer fee that would offset any extra savings.

For example, the ANZ First Card offers an 18-month interest-free period but has a 2% BT fee, whereas the ANZ Low Rate Card offers a 15-month interest-free period with a 0% BT fee .

Depending on how much you transfer, that extra 3 months might not be worth the extra fees.

Click here for offers on balance transfer credit cards

A debt consolidation loan

A debt consolidation loan is a personal loan where the lender gives you cash, which you’ll then use to pay off your other loans. Then you’ll pay off your new loan over a set timeframe you and the lender agreed to.

Unlike a credit card, there probably won’t be a promotional introductory interest rate. However, interest rates in general are lower on debt consolidation loans than credit cards. For example, a personal loan from Ratesetter can come with an interest rate as low as 5.95% p.a., which you’d be hard-pressed to find on a credit card.

These loans work best for someone who is consolidating larger debts and needs more time to pay them off. For example, Wisr offers loans of up to $50,000 you can use to consolidate other loans. Most balance transfer credit cards won’t let you transfer sums that large.

Click here for offers on debt consolidation loans

Balance transfer credit card and debt consolidation loans compared

Here is how the two options compare based on common factors like interest rates and fees.

	Balance transfer credit card	Debt consolidation loan
Interest rates	Generally offer a lower introductory rate perfect for small loans you can pay off quickly.	Generally offer lower ongoing rates anywhere from 3.99%. However, those with lower credit scores can pay up to 43% p.a .
Interest rates	Ongoing rates are usually anywhere from 11.99% p.a. to 20.99% p.a.	These work better for larger loans that take longer to pay off and for people with lower credit scores.
Fees	Anywhere from 0% to 5% of your transferred balance.	Generally no transfer fees, but you may incur an establishment fee of 1%-5% on the amount borrowed.
Loan term	Since you can keep a credit card open forever, there is no set timeframe to pay off your loan (although the 0% interest rate will revert to a higher interest rate after the promotion ends).	Anywhere from 1-7 years or more.
Impact on credit score	Requires a “hard pull” of your credit report, which will cause your score to dip temporarily. However, as you continue to make payments on time, your score should improve in the long run.	Requires a “hard pull” of your credit report, which will cause your score to dip temporarily. If it’s a quick cash/payday loan, your score may dip even more. However, your score can improve if you make your payments on time.
Perfect for:	– Someone with relatively small loans to consolidate – Someone who is after a new credit card anyway – Someone who diligently avoids interest by paying their balance off before interest accrues	– Someone with larger loans to consolidate and who needs more time to pay them off – Someone who usually carries a balance and therefore needs a lower ongoing interest rate – Someone with a lower credit score and who isn’t eligible for a credit card

Pros and cons of each

Here are the pros and cons of each option.

	Pros	Cons
Balance transfer credit card	You could end up paying 0% on your entire debt	You could see interest rates as high as 21% p.a. after the 0% balance transfer promotion ends
	You can use the card for ongoing additional purchases	There’s no deadline to pay off the loan, so you could end up paying on it for longer than you intended
	Your card may come with other rewards and perks like the Qantas points you can earn with the Qantas American Express Ultimate Card or free delivery on David Jones purchases with the David Jones American Express Card .	The ability to make ongoing purchases means you can allow your debt to snowball
	Pros	Cons
Debt consolidation loan	Usually a lower interest rate than a credit card after the card’s balance transfer promotion ends	You won’t get a 0% introductory offer on the debts you consolidate
	A defined loan term with regular repayments gives you a clear time-frame by which to pay off your loan	You may not be able to pay your loan off early without a penalty
	You can consolidate all types of other loans including credit cards, car loans, department store cards and more

Bottom line

Both of these options will meet the needs of most people looking to consolidate their loans. Both should do the job for small to medium-size loans, and the debt consolidation loan can handle debts that are a little larger.

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 Debt consolidation loan vs. balance transfer credit card – which one to choose? appeared first on Credit Simple.

Home loan fees you may encounter

Credit Simple — Mon, 25 Nov 2019 06:00:10 +0000

Most home loans come with their share of fees. Don’t fret over the length of this list, as you probably won’t be subject to all of them. You may even be able to convince your lender to nix a few.

It’s also not an exhaustive list as every lender has its own fee schedule.

Important

Make sure you understand your lender’s specific fee schedule as it can differ from lender to lender.

Without further delay… your list of the most common home loan fees you might see:

Upfront fees

These are one-off upfront fees you may encounter at the beginning of the home loan process. They may include fees to your lender and to interested third-parties like the government and your solicitor.

Upfront lender fees

Application fee. Also be called an establishment fee and it pays for the lender to organize your loan whether you settle or not. Some lenders will waive this fee.
Valuation fee. Pays for a qualified independent valuer to assess your home’s value. Some application fees may cover this up to a certain amount, with you paying any difference.

Upfront government fees

Stamp duty. A percentage of the total cost of your property, which goes to your state’s revenue department (percent varies by state). It’s more of a tax than a fee.
Mortgage registration fee. Pays the state to register the purchased property as the security on the home loan.

Other upfront fees

Conveyancing fees. Fees paid to your solicitor or conveyancer (if you choose to use one) to help you prepare and organise your contract.

Ongoing fees

These are regular, ongoing fees you may have to pay your lender throughout the life of your loan.

Monthly service fees. A regular monthly account-keeping fee.
Annual fees. A yearly fee that usually only applies to package home loans, which are home loans bundled with other financial products.

Exit fees

These are one-off fees you may have to pay when you pay off or close out your loan.

Discharge fee. Also called a settlement fee, this applies when you close out your loan (ie, pay it off, sell your property or refinance).
Early-repayment fee. Applies when you pay off your loan early. Lenders can charge this on any fixed-rate loan but cannot charge this on variable-rate loans approved from 1 July 2011*.

Special fees

These are fees you might have to pay if you’re taking out a special type of loan, like a fixed-rate loan or low-deposit loan.

Rate lock fee. A special fee to lock in your rate with a fixed-rate loan.
Security guarantee fee. A special fee that applies when you have a guarantor on your loan.
Lenders Mortgage Insurance (LMI). An insurance premium that applies when you take out a low-deposit loan (usually under 20% deposit).
Redraw fees. Apply when you withdraw funds from a loan account that you’ve made extra repayments into.

Bottom line

Fees are a fact of life, especially for a financial product you’ll carry with you for a long time. It’s important to become familiar with this list before you start researching home loans. That way you won’t be caught off guard when you do come across these fees in your search and you’ll know what you’re talking about when it’s time to negotiate your loan terms.

*https://www.legislation.gov.au/Details/F2019C00090

The post Home loan fees you may encounter appeared first on Credit Simple.

How your credit score affects the interest rates you pay: Welcome to the brave new world of risk-based pricing

Credit Simple — Mon, 24 Sep 2018 00:11:09 +0000

Watch out! Your credit score could soon affect the interest rate you pay. That’s good if you’re a “unicorn” with a credit score from 801 to 1,000, and not bad if you’re a “thoroughbred” with a score of 601 to 800.

If, however, you’re a credit “donkey” at the very bottom of the credit score pile, a credit pony at 201 to 400, or a farm horse from 401 to 600 you could well pay more.

Why “donkeys” pay more thanks to their credit score

That’s because Australia lenders will soon be adopting a new style of “risk-based pricing”. That means they offer different rates to customers depending on how bankable you are as a borrower. At the moment you’re offered the same rate whether you’re head and shoulders better than other borrowers or someone who has a pretty average record. Here’s what you need to know:

It’s new. Risk-based pricing is new in Australia. In the past “negative” credit scoring only measured you on your defaults. As “positive credit reporting” becomes more common your payment history will be taken into account. The data enables lenders to make better judgements about whether we’re more likely to pay or default.
Who’s offering it? Peer-to-peer lenders such as RateSetter and SocietyOne do this already, says Steve Brown, director of bureau engagement at illion, Credit Simple’s parent company. They rate you from A-E according to your credit score. It’s very much the norm now globally for banks to price according to credit scores as well. We’re playing catch-up here in Australia.
Why do it? Risk-based pricing is starting to happen over the ditch in New Zealand. Lenders want to attract the best borrowers who they know will pay the loan back without being chased. By offering lower rates to the unicorns and thoroughbreds banks and other lenders reduce their risk. It’s also a marketing tool to attract better customers.
What about mortgages? Sooner or later you’ll be offered mortgage rates based on your credit score, says Brown. It already happens informally. Banks are sometimes willing to knock a few points off their mortgage rates to gain or keep a good customer. Conversely, borrowers whose bills get in the way sometimes have to go to second tier lenders such as finance companies to get a mortgage at all. Typically the rates will be higher than banks offer.
Wait, but my credit score sucks. As with mortgages, there is already an informal system that means borrowers pay more if they’re swimming in debt. Aussies with really poor credit scores may not be able to borrow from the bank or credit union at reasonable rates and be forced to go cap in hand to finance companies. For the very worst credit scores the only choice may be payday lenders that charge much higher interest rates.

Never fear. Credit Simple is here with some good advice even if you’ve sabotaged your own credit score. You can get yourself ready for risk -based interest rates by cleaning up your credit score now.

How to get better loan pricing

Start by checking your credit record by ordering your report from all four agencies: illion, Experian, Equifax, and the Tasmanian Collection Service. Go through your report with a fine tooth comb. If you think any entries are incorrect or unfair, contact the bank, finance company, or other credit provider such as utility companies and ask for them to remove these.

The next step to cleaning your credit record is to pay off any debts that have led to defaults. Ask the credit provider to remove the default once you have.

Finally, start paying each and every bill on time including your rent if you’re a tenant. If you need to start budgeting, ensure this happens. Every single payment is a positive mark on your credit record and soon you’ll be moving out of donkey territory and becoming altogether more desirable to lenders.

The post How your credit score affects the interest rates you pay: Welcome to the brave new world of risk-based pricing appeared first on Credit Simple.

So you want a clear score. Can payday loans stop you from getting one?

Credit Simple — Thu, 07 Jun 2018 19:48:30 +0000

Looking for a clear score but wondering if a payday loan could stop you from getting one?

Payday loans became prevalent as quick fixes for Australians in the 1990s, responding to the need for small, personal loans that banks and credit unions would no longer provide. Payday loans were frequently offered to people with bad credit or who didn’t have clear scores, making the loans even more ubiquitous. A small payday loan can be up to $2,000 and has a maximum term length of one year.

With soaring interest rates on these short-term, easy-to-get loans, people were burdened with more and more debt, unable to get out from under it. And payday loans have continued to be offered in Australia and are especially enticing to those with bad credit. Current statistics from Finder show that 60 per cent of payday loan borrowers have a bad credit history.

While payday loans are not always bad, they can stop you from having a clear score. Your credit score takes into account your entire credit history, which would include any payday loans you have taken out. There are a few things to keep in mind if you are planning to apply for a payday loan.

What are the negative effects on your credit score?

Payday loans can affect your credit score negatively in a few different ways. While many payday loans will not directly show up on your credit report, failing to meet repayments can result in a default – which most certainly will go on your record.

Additionally, applying for too many payday loans can lower your score and may look bad to future lenders. Ensure that you’re keeping tabs on the number of applications you’re filling out and continue to monitor your credit report for changes. You may also want to consider an alternative to a payday loan, like cutting back on expenses or asking friends or family for help.

Can payday loans help my credit score?

Payday loans may not always affect your credit score negatively. A payday loan could actually improve your credit score, as long as you make payments on time and pay it off within the term agreed upon. This shows up on your credit history as a positive thing; you were able to properly handle credit. This is what lenders want to see.

If you are worried about a low credit score, avoid taking out a payday loan. But if you must, like with any form of credit, as long as you make your payments on time and pay the loan off promptly, it can help fill your credit report with positive information. Credit Simple has more helpful information about credit scores, easily accessible online. You can check your credit score instantly, online and free right here at Credit Simple, and make sure you have a clear score by following the tips on our blog.

The post So you want a clear score. Can payday loans stop you from getting one? appeared first on Credit Simple.

How does my credit score affect mortgages and other loans?

Credit Simple — Mon, 01 Jan 2018 05:36:32 +0000

The majority of purchases we make in our lifetime are affordable enough for us to either buy outright or save towards over time. This is rarely the case for high-value assets such as houses, cars and other expensive items.

Statistics show that the average property price across Australia’s capital cities reached $625,000 in July 2017. A new vehicle is cheaper (and cars are apparently more affordable than ever before, but still a considerable expense nonetheless.

Even renting an apartment comes with significant upfront costs such as agency fees, bonds and any monthly rent paid in advance.

Dwelling values higher over the month in all capitals except Brisbane, Perth & Darwin | https://t.co/cEP5lr7sJt #ausproperty #propertyau pic.twitter.com/se6aLUKFXu
— CoreLogic Australia (@corelogicau) August 1, 2017

So, unless you want to spend the next few decades saving for your first home or car, you’ll likely need access to credit to get the ball rolling.

What kind of credit score do I need?

It goes without saying that your credit score must be in better shape for a home loan approval than it does for a new credit card or mobile phone contract.

However, there’s no one-size-fits-all answer for what credit score you need to gain approval. That will depend on various factors, including your credit rating, your recent activity, the financial institution’s internal assessments and whether or not you’re applying to a traditional lender.

If you’ve already been rejected for a mortgage or other high-value loan, please click here to read our blog on ways to improve your credit rating. A few simple changes could dramatically increase your chances of securing credit.

Buying your first car, or know someone who is? It's a big decision with a boot-load of costs. More here : https://t.co/FenGo6mxBf pic.twitter.com/nSYEyE3uRF
— MoneySmartTeam (@MoneySmartTeam) August 9, 2017

What is considered a good credit rating?

We may not be able to give you an exact figure for the kind of credit score you’ll need to buy a home, rent an apartment or purchase a car. But we can give you a rough estimate of how lenders may view your current rating.

0-299: Unfortunately, you have a low credit rating and will struggle to obtain credit, especially for home loans and similar forms of borrowing.

300-499: We call this the ‘room to improve’ category. While not in the upper echelons, you probably don’t have any huge black marks on your report, but mortgage lenders may still view you as a risk.

500-699: This is an average rating, so your likelihood of securing a mortgage or personal loan may rely on individual factors and the lender’s specific criteria.

700+: You have a good to great credit rating and financial institutions will view you favourably when applying for mortgages and personal loans.

We hope this has helped you understand how your credit rating relates to big-ticket purchases such as homes and cars, but if you would like to learn more, please click here.

What kind of credit rating do you need to secure a mortgage? Let’s see.

The post How does my credit score affect mortgages and other loans? appeared first on Credit Simple.