5 Tips for Getting the Best Deal on a Personal Loan (and Paying it off Sooner)
At various times, you might need a loan. I try to avoid debt, however, there have been times in my life I’ve needed one including for custody (it took 7.5 years and a lot of court, legal fees etc to get sorted), education when it wasn’t covered by HECS/HELP and a car.
There are numerous reasons you might need one, so how do you get the best deal on a personal loan?
1. Know Your Credit Score
What is your credit score? It’s the number lenders use to determine your interest rate. Using all the information from your financial life including where you have lived, how long, how much money you have borrowed, types of loans, your bills etc. It is all put together to create your score.
A credit score above 800 is excellent and ideally what you should be aiming for. Above 800 is considered the best and you will get better offers than those with scores between 600 and 800.
Credit scores are split into sections as you can see below:
2. Know Your Credit History
Every time you apply for a loan, credit card or similar, it goes on your history. As do defaults on those loans, not paying your bills and them going to debt collectors etc. Basically, anything you do which is really bad will leave a mark.
You can check your credit history for free in Australia. If you have anything on there which isn’t yours, there are things you can do to have it removed.
Credit scores and credit histories matter. Keep on top of them, manage your finances well and you will get better offers.
3. Know What you can Afford
If you haven’t already, create and stick to a budget. Knowing your income vs expenses is essential both for the loan application and life in general.
In the loan process, you will be asked how much you earn, what your expenses are etc. You need to have proof of this as well so have all your paperwork ready.
4. Compare and Know What You’re Comparing
Personal loans are not created equal. Your credit score, credit history and the options from each lender all impact what your personal loan will look like. Without going to every single lender, how can you know which one is offering the right deal for you?
Years ago, it was a long and difficult process to compare. Now, it takes less than 2 minutes to get offers from multiple lenders based on your circumstances and you can do it from the comfort of home.
Using sites that compare everything for you is one of the best ways I know of for how to get the best deal on a personal loan.
As for what are you comparing… It’s not just interest rates. Loan establishment fees vary from $0 to $500. Monthly fees are $0 to $45 is the highest I’ve seen. That means, with the wrong loan $45 will be charged for having the loan.
Fees for missing a payment are often around $15 to $45 as well. Then, of course, there is interest. Also, fees for completing the loan early and other hidden fees. Know what you are comparing as those fees add up quickly.
5. Choose the Best Personal Loan for Your Circumstances
Once you’ve gone through the process above, you’ll have options for the best personal loans for you. Decide which one or ones sound good to you and you can then get a quote. The quote is the stage before applying and will not be on your credit history or affect your credit score.
This step is important as different lenders will offer different deals at this stage too. Compare the quotes then only move ahead with an application on the one you feel is the best option for you.
Personal loans leave a mark on your credit history and the more you apply for, the worse your credit score will get. This is why it is so important to do all your research and have your options ready before applying. Once you apply, it’s on your report.
Lenders view all those applications as potential loans so your score goes down, your borrowing capacity goes down and the offers you get worsen as well. Interest rates will be higher and options for personal loans fewer if you apply for numerous loans at the same time.
Only apply when you know which personal loan you want.
How to Pay Off Your Personal Loan Quickly
Lenders won’t want you paying your personal loan off quickly as it is in their best interests to keep you in debt. They make more money the longer you’re in debt but you want your money to work for you, not against you. Here are a few tips to help you pay off your personal loan quickly.
Pay Off Extra
So you got your loan based on your income vs expenses today. What happens if you lose some income or expenses increase tomorrow or sometime in the future?
The second you get the loan if you can pay something off, do it. And keep paying extra bits off, even if it’s only $5 here and there. Those amounts add up and they mean you have extra money sitting in a redraw part of the loan usually.
This means, if anything happens, you have money there you can use for payments. If you never need to use it, all that money helps you clear the personal loan sooner. Plus any money sitting in the loan reduces the amount of interest you pay overall.
Cut Back Your Expenses
Go over every area of your budget and see where you can cut back. With every expense you are able to reduce, add that amount to the loan. For example, if you normally spend $350 on groceries but did them for $300 this week, put that $50 onto the personal loan.
These posts will help:
How to reduce the cost of everything
How to get free and super cheap groceries
How to reduce your top 3 expenses – accommodation, groceries and transport
How to Survive on Centrelink includes all the information we have plus links to every article for living on a low income
Make More Money and Put it on Your Personal Loan
Do what you can to make more money and put it straight on your personal loan. 99 Side Hustles for Aussies includes ideas, how to get started, how to market the ideas and tax tips. There are so many ways to make money now.
I have tested numerous ways to make money from Airtasker to online surveys. One year, I made an extra $33,277 on the side doing random side gigs.
Find ways to make money that suit your lifestyle and use it to clear your debt.