The truth is, despite interest rates being at record lows for most loan products – they’re much higher for credit cards – and some haven’t moved for years. In fact, the government is considering the introduction of tighter restrictions for credit card issuers in Australia – and some of the key drivers for this initiative are the high interest rates and the fact there is no real fixed term for a credit card. No one wants to pay up to 21 per cent interest; so here are four reasons why a personal loan could be a more attractive option.
They have lower interest rates
The interest rate on a personal loan will generally be lower – some are as low as 7.99 per cent. When you compare that to a rate of 21 per cent like some credit card providers are charging, it could mean significant savings. Like a credit card, interest on a personal loan is calculated daily, however, there is a big difference between 7.99 per cent, and 21 per cent and this can make a difference over the life of the loan.
They are paid out over a fixed term
A personal loan is agreed over a fixed term – so the loan has to be paid back within a set timeframe. Not only does this mean there is a clear start and end date for the loan, but it could mean paying much less in interest.
Many credit cards have no fixed term, so they roll over year-to-year. The only requirement of the borrower is a minimum payment each month, however paying only this small amount can cost tens of thousands of dollars in additional interest.
For example, paying the minimum monthly amount on a $10,000 personal loan at 7.99 per cent over a five year term, you would pay $2,163 in interest, but clear the debt. On the other hand, paying the minimum monthly amount on a $10,000 credit card at 21 per cent interest over 5 years; borrowers would pay $6,232 in interest, still have 25 years and an additional $24,638 of payments still to make.
The features are similar
Some personal loans have lots of features that make them similar to credit cards. For example, even if a borrower is approved for $30,000, they may have the flexibility to withdraw the money as they need it.
They may also allow for extra repayments to reduce the debt without penalty – with the option to redraw any available funds for free.
Finally, there are some personal loans that provide a debit card linked to the loan account. This enables the borrower to use it like a credit card for purchases or allow for easy cash withdrawals at ATMs or Eftpos.
The application process is quick and easy
These days borrowers are looking for a hassle-free solution. So look for a personal loan that offers a quick and easy online application process.
Some, like Liberty’s personal loan, have a paperless application, so there is no need for printing or scanning bank statements which can slow everything down. In some cases, you can even be approved and have the money in around 60 minutes of applying.
To learn more about Liberty’s range of personal loans, click here.