No matter your age and stage, credit cards are becoming the go-to financing option when making purchases with money you don’t have to hand.
Whether it’s making a big purchase, settling an unexpected bill, or paying for a holiday, many Australians simply put it on plastic.
According to news.com.au, in the past 15 years, older Australians’ credit card debt has skyrocketed from $4000 on average to $8000.
Yet, compared to credit cards, personal loans often have lower interest rates and offer fixed repayment rates. In theory, this should make personal loans a much more attractive option for those who need finance but don’t want to pay excessively for it.
Maybe credit cards are comfortable. And, yes, the process of applying for a loan can be littered with easily avoided mistakes. So, if you are planning on applying for a personal loan, here are some simple tips from Savvy to ensure that you don’t fall into any financial traps.
Going for the first loan your bank offers
It seems simple – just pop into your bank, apply for your personal loan, and you’ll be on your merry way. However, the loan that your bank has on offer may not be the best deal for you and your circumstances. Many non-bank lenders may have products better suited to older people and pensioners. Some banks and lenders will also approve loans for self-funded retirees. Just like any major purchase, it pays to shop around for a better deal.
Accepting unfavourable terms
All lenders are bound by strict codes of conduct and regulations, such as the Consumer Credit Code (National Consumer Credit Protection Act 2009). However, because borrowers aren’t aware of these laws, many still voluntarily enter personal loan arrangements that are not in their favour.
Some lenders may class retirees as a higher risk, even though they may have a large portfolio of assets and investments, which makes them a safer bet than a fresh-out-of-school 18-year-old!
So, it pays to keep this in mind when you do shop around.
Savvy CEO Bill Tsouvalas says knowledge is the key to finding a good deal.
“Some lenders will talk in jargon, say that their rate is low and not explain the fees and charges. Where possible, look for comparison rates; they show you how much the loan really costs, including most of the fees,” he said.
Going in blind without a credit history check
When you apply for any major type of finance, your bank or lender will conduct a credit check. You should pre-empt their check by doing one of your own. A credit history reveals all the times you’ve applied for credit, paid off loans, and incurred defaults. Sometimes, defaults aren’t your fault. It’s also possible that overzealous telcos or utility companies slap defaults on your report, even if you settle an overdue bill. Unfortunately, it’s your job to find errors and correct them. This can help you gain a better rate, as it shows you’re a more responsible borrower.
Fudging the numbers
If you are afraid that your application for a personal loan may not be approved for a personal loan, don’t fudge the numbers. You have many options when borrowing and, as we stated earlier, having a high asset or investment portfolio can work in your favour. Your broker or lender wants to lend to you (a commission in their pocket is one very good reason why!) – so be upfront with them, and they’ll be more inclined to help.