Before taking on a personal loan, you should find the right loan for yourself. There are several things you need to do in this regard, but the first thing to do is to decide which type of loan would be right for you.

Below are the different types of loans you can take and some explanations about them:

• Secured loans - Secured loans require some form of security, usually an asset that you own. This could be a car, a house, or any other tangible asset. Once you put up the asset as security for the loan, the lender can offer you lower fees and interest rates on the loan. Lenders will often allow you to secure the loan using the asset you wish to purchase using the loan or using an asset that you already own.
• Unsecured loans - These types of loans are the opposite of secured loans as you do not need to put up any security to get the loan. They are also a great option if you need to take out a loan for something that cannot be used as security, such as a holiday. Because there is no security to put up, these loans often attract higher fees and interest rates compared to secured loans.
• Car loans - These types of loans are offered by lenders, banks, or car dealers if you are purchasing a car through a dealer.
• Lines of Credit - Lines of credit are where a lender or a bank gives you access to a set amount of money. You can borrow from this amount up to the limit and only pay interest on the actual amount you use. These types of loans are great for debt consolidation or the purchase of more than one item.
• Debt consolidation loans - Debt consolidation is where you take out a large loan, pay off the debts you have, and only have one loan to repay going forward. Debt consolidation loans are a great option for those looking to get out of debt. Debt consolidation loans usually have lower fees and interest rates than the different debts you may be serving if you did not take out the loan.
• Overdrafts - Overdrafts are very similar to unsecured loans, and they are usually tied to your daily account. Overdrafts allow you to withdraw more than is in your bank account.
• Bad Credit Loans - A major problem of having bad credit is that there are few loan facilities available to you. Fortunately, you can still take out bad credit loans. These are usually offered by lenders who do not do credit checks or who cater to borrowers who have a negative listing on their files.

To Buy a Car

For a car purchase, you should consider an unsecured personal loan or a car loan. If you would like to use the car you will purchase as security, a car loan is the better option. Ensure you check that the car is eligible to be used this way because some used cars are not. If you would like to purchase an older car or a car that you will not use as security, an unsecured personal loan is the better option. An unsecured loan can also be used to purchase something else or for something else if there is an amount left over.

To Pay For a Holiday, Home Renovations or Wedding

For either of these, an unsecured option would be best. You can even apply for a line of credit and only withdraw the amount you need to avoid paying too much interest.

To Borrow Less Than $3,000

Since this amount is on the lower end, you will have difficulty getting a bank to loan you the amount. For such an amount, do consider a line of credit, a credit card, or an overdraft facility. You also have the option of taking a short-term loan but do know that these types of loans usually have very high interest rates. Ideally, you should only consider short-term loans if you have no other options.

When I have an Asset For Security

An asset such as a vehicle can be of great help when you need a secured personal loan. Because you attach a physical asset to the loan, you stand to get better interest rates and fees. These loans also have the added benefit of allowing you to use them for whatever you need.

To Consolidate Debt

Debt consolidation loans are a great way to “gather” all your loans in one place. This allows you to make a single monthly payment and these loans usually have a low interest rate and fixed fees.

When thinking about a debt consolidation loan, do consider whether the payments will save you money. If the repayment amount is lower than the combined repayment amount from several accounts, then this type of loan is a great option.

Also, consider if you are eligible for this type of loan. You might not qualify if you have debt from too many accounts or if your credit is too bad. In these cases, you need to talk to lenders who cater to borrowers in your specific situation.

Once you know the type of loan that would be great for you, here is what to consider to decide which option would be best:

• Amount - How much will the lender let you borrow? Will it fit your needs?
• Terms - How long do you have to repay the loan? Terms of between one and seven years are the standard, but you can talk to your lender to get customised terms.
• Fees - Here, you need to consider the different types of fees such as application fees, monthly and annual fees as well as withdrawal fees. 
• Interest rates - Are you getting competitive rates? Is it variable or fixed?
• Affordability - Can you afford to repay the loan according to your budget? Here, you can use a loan calculator to see if you will be able to handle the payments.
• Repayments - What is the repayment schedule? Is it weekly, biweekly or monthly? Can you make extra repayments? Can you repay the loan early?

Every lender has eligibility criteria that borrowers must meet. It can include any or a combination of the following factors:

• Age - While you need to be at least 18 to get a loan in Australia, some lenders require that you are at least 21 years old.
• Income - Depending on the type of loan and the amount you are borrowing, you need to earn a certain amount to be considered. For some lenders, that can be as high as $35,000. If you do not know if your income is high enough for a specific lender, you can always consider loans that are tailored for lower-income lenders.
• Employment - Almost all lenders require that you are employed, but some will offer loans to the unemployed. Some leaders will only consider applications that are not on probation and who are employed full-time. Some lenders lend to casual employees or those who receive Centrelink payments.
• Residency - Australian lenders and banks prefer that you are an Australian citizen. However, they do consider permanent or temporary residents in specific circumstances.

One thing to remember is that you may meet all the eligibility requirements and still be denied a loan. Why? You may not have demonstrated adequate ability to repay the loan. Lenders will look at your debts, employment stability, and income when considering whether you can make the repayments.

Every lender follows a different application process when processing personal loans. For most lenders, you get the option to apply at any of their branches if they have any, over the phone or online. Lenders and banks will often make all the information and documentation you need available online.

When applying for a personal loan, you may be asked to provide:

• ID - This can be a photo ID, passport or driver's license.
• Proof of income - This is usually in the form of payslips. Most lenders will request three to six months of documentation, including bank statements and payslips. If you are self-employed, you will also be asked for two years of tax returns. Those receiving Centrelink payments need to show receipts to prove they have an income.
• Additional financial documents - These can include documentation about debts you carry, such as credit cards and loans. You will be required to provide additional documentation and statements from all of these accounts.

Once you provide everything required of you, online applications take an average of 15 minutes to be completed.

Depending on the lender you choose, you may receive an answer instantly or in a few days or weeks. You may receive full or conditional approval.

Conditional approval takes longer and is often given when the lender requires additional documentation or information from you. This can include payslips or asset and debt documentation. Some lenders will ask for additional documentation and not give conditional approval. This extra step is used to collect more information that is used to make a decision regarding your loan request.

Full approval is given when the lender is satisfied with the documents you presented, these documents are enough for them to make a decision, and they approve the loan.

There are divergent loan finding options. These usually depend on the type of loan you took as well as what you are planning on using it for. When you take a car loan, for example, the lender will not give you the money but will instead purchase the car directly. This also happens in a lot of debt consolidation cases where the lender opts to pay your debtors instead of sending the money directly to you.

Unsecured loans are usually sent to an account that you provide during the application process. Do note that the loan can be sent as soon as it is approved or a few days after.

Lenders and banks will often give you a few repayment options to choose from. These can be monthly, biweekly or weekly repayments. A general rule is that the regularity of your payments determines how much interest you pay; regular and frequent repayments lead to lower interest overall. This makes early and additional repayments something to think about when choosing a repayment option.

Some things to think about include:

• Whether the lender charges extra fees for extra repayments.
• If they have restrictions on the extra amount you can repay yearly. Fixed-rate personal loans usually have this limit.
• If there is a penalty for repaying the loan early.

Loans are closed once you make the final repayment. Some lenders will not close your loan if you pay early and may end up paying unnecessary interest. This often happens when you finish paying off the loan early. This is why it is so important to get in touch with the lender to ask them if there will be an extra payment to close the loan early. Also, get a guarantee that they will close the loan upon the final repayment or payment of the requisite amount.

Most people pay attention to the interest rate when choosing a loan, but it is the comparison rate that you should pay close attention to. The comparison rate can tell you a lot about what you need to know about a specific loan.

So, what is the difference between interest and comparison rates? While the interest rate is the percentage of the amount borrowed that you have to pay back, the comparison rate includes every cost associated with taking the loan. This includes both the interest rate and all fees associated with the loan.

It is common to see loans with an interest rate of, say, 12.45% and a comparison rate of, say, 14%. You might wonder why there is a difference. The difference between the two rates is the fees associated with the loan. Loans that have an interest rate equal to the comparison rate do not come with additional fees or charges besides the interest rate.

The formula for calculating comparison rates depends on the type of loan you are interested in. If your loan comes with a comparison rate, you need to ask how it was calculated. 

Lenders are required to provide comparison rates in addition to prevailing interest rates on all their loans. Do note that the amounts borrowed as well as the terms of different loans can lead to different comparison rates.

Yes, they are, and you should always check them. Remember that interest on any amount borrowed is calculated using the interest rate and not the comparison rate. It is important to know the interest rate charged as well as whether that rate is competitive. 

You also need to remember that you may end up paying more interest than is listed by a lender or bank. This is because the lender or bank will consider several factors during the application process. These can include the amount being borrowed, any debts you are carrying, your income and your credit score.

A competitive loan gives you everything you are looking for in a loan. There are a few things to consider when deciding if a loan is competitive.

Competitive Interest Rates

There are two interest rate types. Fixed interest rates, as you can tell from their name, are fixed meaning they remain the same for the duration of the loan term. Fixed interest rates can also be applied to some loans during the introductory phase.

Variable interest rates are usually the same as those advertised on the lender’s website or their marketing material. However, this rate will change with the movement of interest rates in other areas of the market. You should compare loans with the same type of interest rate to ensure you are getting the best deal.

Fees and Charges

When comparing loans, you also need to think about the upfront and ongoing fees. These are the fees charged when the loan is dispatched and those paid during the loan’s term. Some of the fees you need to know about include application, exit and set-up fees. Ongoing fees include annual or monthly fees. Some lenders will also charge you when you decide to take advantage of additional features that come with the loan. Ensure that you ask about these charges before going ahead.

Also, ask the lender if there are cost savings such as fee waivers available for your particular type of loan so you can take advantage of them.

Loan Flexibility

Another important factor to think about is the loan’s flexibility. The loan's flexibility determines things like how often you are required to make payments, if you can complete payments earlier by making additional repayments, or if there is a redraw option if you consistently make early payments.

If you need any type of flexibility with your loan or repayments, talk to your lender to see if there is any room for any request you have to be honoured.

Realistic Repayment Term

Most lenders will give you a term of between 1 and 7 years on personal loans. However, they can also offer shorter terms for short-term loans. Some lenders offer short repayment periods even for large loan amounts, so check that the terms are good enough for you. Do note that longer repayment periods mean lower repayments but more interest paid over the loan’s term.

Personal loan eligibility depends on:

• Your income - Applicants who have a low income should consider applying for low-income loans. A calculator can help you know where you can fulfil the borrowing and repayment requirements of specific types of loans.
• Whether you are a pensioner - If you are currently receiving a pension, talk to your lender about loans tailored for pensioners.
• Whether you receive Centrelink payments - Recipients of Centrelink payments can apply for loans specifically tailored to them.
• Your credit score - If you have a bad credit score or have any negative marks in your reports, you can still qualify for bad credit loans. Since you will receive an interest rate that is higher than the average, ensure you shop around and compare lenders to end up with the best interest rate.
• Whether you have debt - Those who have personal or credit card debt can still qualify for personal loans. It is important to check the interest rate, repayments and the amount of debt they carry before applying for these loans.
• Whether you need the lender’s minimum requirements - If you do not meet these requirements, you may still be able to apply through or with a guarantor. This is someone who will handle the repayments should you not be able to meet the obligations for any reason.

All lenders and banks have different criteria that you have to meet before your loan is approved. These include proof of identification, 3-6 payslips, at least two years of tax returns, bank statements and statements from other accounts you have used to apply for loans previously and credit card statements.

If you are applying for a car loan, you need to have the car verified by the lender before they pay for it or give you the loan. For this, you will need the following:

• Chassis or VIN, registration plates and the engine number
• All pertinent details about the dealer including contact information
• Information about the seller if it is a private sale
• Comprehensive and CTP insurance details

While there is no assurance that you will get every loan you apply for, you can improve the odds greatly by meeting the eligibility criteria a lender has set. Some other tips to improve your chances include:

• Knowing the capacity you can borrow - Be realistic about the repayments you can comfortably afford. Lenders will use different criteria to decide how much they can lend you and the amount you apply for should be as close to this number as possible. The only way to get the “right” number is to be honest and realistic about how much you can afford.
• Maintain a good credit score - Ensure that you do not do anything to harm your credit score. This includes keeping up with payments such as credit cards and utility bills. Remember that arrears, missed payments and debts can bring your credit score down. Those with a low credit score can start improving their credit scores by ensuring their bills are paid on time, they hold as few credit cards as possible and that their credit card limits are as low as they can realistically be.
• Keep up with your savings - If you contribute to a savings account or fund, that is a great indicator that you can handle regular loan repayments.