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One low rate, one better life

When it comes to your money, you're in charge. For a clearer picture, consolidate your debt with a lower rate.

Debt consolidation, explained

A debt consolidation loan is very similar to a personal loan, with one key difference: it’s there to help you pay for what you’re already paying for.

If you have multiple debts – such as a credit card debt, car loan, medical bills, bank overdraft charges, and so on – managing all your monthly repayments can feel overwhelming. Debt consolidation loans let you roll all of your debts together and pay them off together ­– in one handy payment and usually at a more competitive interest rate.

Lighten your load
Debt consolidation is a way of streamlining all the money you owe. These loans generally allow you to enjoy a lower interest rate than you would receive with a credit card. You’ll no longer have the hassle of multiple monthly payments and you also might be able to make early repayments if your bank balance is looking healthy. This may mean you can pay down your debt faster, helping you save in interest and getting you out of debt sooner.

But just like any other personal loan, they come in a few different shapes and sizes. Here are the two main ways to tell them apart.

Secured or unsecured
You can often access a better rate if you’re willing to put up an asset as security against the loan. Just remember, with a secured loan, the lender has the right to repossess the asset if you can’t repay the debt.

Fixed or variable
If you’re looking for complete control over your money, you can choose to fix your loan, meaning you’ve locked in your interest rate and you can work out the exact total cost of your loan, down to the cent. Or you can keep the rate variable and see where the market takes you.

How much can I borrow?
You can borrow between $2,000 and $50,000 or more, across a range of loan terms, from 1 to 7 years. The loan is paid back in regular instalments (weekly, fortnightly or monthly) with interest, which may be fixed or variable across the life of the loan.

Put your good credit history to work with a personal loan for debt consolidation.

Wondering how to consolidate debt? Debt consolidation loans aren’t a big mystery – they’re simply personal loans specifically for debt consolidation. To understand them, you simply need to understand loans.

What to look for in a debt consolidation loan:
Whether it’s a personal loan for holiday or a personal loan for debt consolidation, all loans have the same building blocks. It’s about finding the right fit for you.

Interest rate
Money costs money. So when you borrow it, you need to pay it back with interest. The interest rate, also known as Annual Percentage Rate (APR) or Advertised Rate, is the percentage that you’ll pay on top of the amount you borrow. It’s usually expressed as an annual rate.

How is interest calculated? To work out your rate, lenders will factor in things like your credit history, your repayment schedule, the risk (both for lending to you and how the market is going) and their underlying costs.

Most lenders start with a headline advertised rate – the lowest rate they have available. But they might not offer you this rate – it’s usually only available to a small proportion of borrowers and may come with set conditions to qualify (e.g. a high credit rating plus homeownership).

So, it pays to do your research. Before you apply anywhere, get a personalised rate from a number of providers. Just be sure that the lender’s quote process is ‘credit score friendly’. That is, they only conduct a soft check on your credit file which won’t impact your credit score.

Remember, the loan with the lowest interest rate might not necessarily be the best loan for you. Be sure to consider the total cost of the loan including interest, fees and other costs to truly assess the value of any interest rate on offer.

Comparison rate
Interest isn’t the only cost of a loan; it will usually come with fees and other charges. These can be quite significant and quickly outweigh a great rate. To avoid getting caught out, look at the comparison rate, which factors in the interest rate and any fees, expressed as an annual percentage. The comparison rate is usually higher than the interest rate charged on the loan.

Because it’s so important, lenders and brokers must provide a comparison rate when they advertise a loan interest rate under the National Consumer Credit Protection Regulations.

How is it measured?
For personal loans, there is a standardised measure for how comparison rates are to be calculated and displayed. For variable and fixed-rate personal loans, the comparison rate is based on a $30,000 unsecured loan over 5 years.

But there’s a catch – not all costs are included. So you don’t get an unwelcome surprise later, you still need to factor in:

  • Late payment fees
  • Break costs or early termination fees
  • Deferred establishment fees
  • Broker fees (when taking out a loan through a broker, the broker’s service fees aren’t included in the comparison rate, which can be significant)
  • Repayments

Once you’ve got all your ducks in a row and consolidated your debt into one loan,it’s time to repay the money. During the loan process you’ll agree to a regular schedule for repayments – either weekly, fortnightly or monthly. Factor these repayments into your budget and be sure that your loan repayment calculations have been quoted inclusive of any ongoing fees.

Your lenders might also offer a balloon payment, which is a lump sum repayment you make at the end of the loan term. It can reduce your regular repayments, making it a handy way to manage your cash flow. But remember, the lump sum is due at the end of the loan, so you still need to find the money along the way. You’ll also be paying interest on a higher loan balance as you go.

Upfront fees
Also known as application or establishment fees, they’re ‘one-time’ charges at the start of a loan that get the ball rolling. They can include:

  • A flat fee (e.g. $499) that applies regardless of the value of the loan
  • A tiered fee (e.g. $250, $500, $750) based on the value of the loan
  • A percentage fee (e.g. 3%) based on the total amount borrowed and the credit or risk profile of the customer
  • A hybrid fee (e.g. $200 + 2% of the loan amount)

Your lender may charge any or all of these, it’s up to them.

But, fun fact, even though they’re called ‘up front’, that’s not when you pay them. Establishment fees are usually capitalised to the loan, meaning they’re added to your loan balance.

That means you’ll be paying interest on those fees as part of your total loan. The difference might be only a few dollars on each repayment if it’s a small upfront fee. But if it’s bigger, it can quickly add up.

Monthly or ongoing fees
Your lender may charge any or all of these, it’s up to them.

Even though they’re called ‘upfront,’ that’s not when you pay them. Establishment fees are usually capitalised to the loan, meaning they’re added to your loan balance.

That means you’ll be paying interest on those fees as part of your total loan. The difference might be only a few dollars on each repayment, if it’s a small upfront fee. But if it’s bigger, it can quickly add up.

Also known as account keeping or loan management fees, ongoing fees are usually paid monthly across the life of a loan. They don’t reduce what you owe at all, they just go straight to the lender. Generally the lower the fees, the better. But again, it’s all relative to the total amount you repay when you factor in all interest payable and costs.

Brokerage fees
If you use a broker to help track down your loan for you, remember they’re doing a job. That means you’re paying them, whether you realise it or not.

In the case of personal loans, the brokerage fee is often capitalised to the loan amount and is in addition to the lender’s own upfront fee. Brokers can also have commission arrangements with lenders that are either built into your interest rate or offer them a return based on the final rate you accept. Be sure to factor that in when deciding if their services are worth it.

Penalty fees
Nobody ever takes out a loan expecting to pay penalty fees. But life doesn’t always go to plan. The best you can do is try and minimise the damage.

The most common penalty fee is the ‘default’ or missed payment fee. If you make a payment late, or there are insufficient funds in your nominated account on the day a payment is due, you can get slugged with this fee.

Late fees vary from $10 to as much as $35. Some lenders may waive the fee if your account is brought up to date within 3 days of a missed payment, but it’s best not to risk it. Be sure to keep an eye on your spending and make sure you have enough in your account to pay the loan. Some borrowers even set up a separate account dedicated to paying their loan.

Early repayment fees
If you think you want to pay your loan down ahead of schedule, look for a loan with low or no early repayment fees. Otherwise, all your hard work may go to waste if you get charged for it.

Exit fees or early repayment fees are more common with secured low-rate loans. There are different types

Ongoing fees, also known as account keeping or loan management fees, are usually paid monthly across the life of a loan. They don’t reduce what you owe at all, they just go straight to the lender. Generally the lower the fees, the better. But again, it’s all relative to the total amount you repay when you factor in all interest payable and costs.

Brokerage fees
If you use a broker to help track down your loan for you, remember they’re doing a job. That means you’re paying them, whether you realise it or not.

In the case of personal loans, the brokerage fee is often capitalised to the loan amount and is in addition to the lender’s own upfront fee. Brokers can also have commission arrangements with lenders that are either built into your interest rate or offer them a return based on the final rate you accept. Be sure to factor that in when deciding if their services are worth it.

Penalty fees
Nobody ever takes out a loan expecting to pay penalty fees. But life doesn’t always go to plan. The best you can do is try and minimise the damage.

The most common penalty fee is the ‘default’ or missed payment fee. If you make a payment late, or there are insufficient funds in your nominated account on the day a payment is due, you can get slugged with this fee.

Late fees vary from $10 to as much as $35. Some lenders may waive the fee if your account is brought up to date within 3 days of a missed payment, but it’s best not to risk it. Be sure to keep an eye on your spending and make sure you have enough in your account to pay the loan. Some borrowers even set up a separate account dedicated to paying their loan.

Early repayment fees
If you think you want to pay your loan down ahead of schedule, look for a loan with low or no early repayment fees. Otherwise, all your hard work may go to waste if you get charged for it.

Exit fees or early repayment fees are more common with secured low-rate loans. There are different types:

  • A fixed fee where the loan is repaid in full any time prior to the end of the loan term (e.g. $500)
  • A fixed fee where the loan is repaid in full prior to a minimum period (e.g. $250 if full repayment is made less than 2 years into a 5-year loan)
  • A variable fee based on the amount you would have paid in interest and fees had the loan run to full term

Loan amount
How much money do you need to repay your existing debt? Add it up and that’s your loan amount (plus those upfront fees). This is the principal part of your loan that you’ll make repayments on. Interest is charged on the outstanding balance of your loan.

In Australia, debt consolidation loans usually range from $2,000 to $50,000, but some lenders will go higher.

Loan term
A debt consolidation loan gives you the space you need to pay off your debt over time. In Australia, lenders offer loan terms between 1 and 7 years, with 3, 5 and 7 year terms being the most common.

If you’re tempted to take your time, just remember, a longer-term loan might have a higher interest rate, meaning loan will cost you more overall. But when it comes to cash in the bank, your monthly repayments will be lower. Do your sums and choose what’s right for you.

Customer experience
Whilst not technically part of your loan, it’s the X factor that can make all the difference on your journey to financial freedom. Because the best way to consolidate debt into one payment is with a lender that cares.

You want a lender who makes it quick and easy to apply, get approved and manage your loan. And if you have a problem, you want a lender that cares about your experience. It can go a long way towards trusting you’re getting the best deal.

Anything else?
A debt consolidation loan can affect your credit score, and unfortunately, things usually get worse before they get better. Opening a new credit account temporarily lowers your credit score. Lenders look at new credit as a new risk, causing a temporary dip in your score. You can fix this by paying your new consolidated debt on time – that should bump it up higher than before.

Know your debt consolidation home loan from your fixed-rate unsecured personal loan? You soon will.

Debt comes in many forms. From credit cards to car loans, it can quickly add up. Keeping it under control can be a challenge. That’s why consolidating your debt into just one loan can be a clever idea. It makes life easier with just one loan to pay, and you might even save money on interest, fees and charges. But how do you do it? We talk you through the ins and outs, from a debt consolidation home loan to a shiny new personal loan in all their different forms.

Add to existing debt or start fresh?
When you’re looking at streamlining your finances, you’ll be getting up close and personal with your debt. You might think it’s easiest to simply work with what you’ve got. For many people, that means refinancing their mortgage.

With a debt consolidation home loan, you combine all your outstanding debt into your home loan, essentially increasing your home loan. Just remember, although it makes payments easier, home loans have a longer loan term, so you’ll have a greater number of monthly repayments over time. That means you may end up paying more interest in the long run, costing you more.

If you want to keep your mortgage separate (or you don’t own a home), you can simply take out a personal loan to consolidate your debt.

To secure or not to secure?
If you own something of value like a car, home or term deposit, you can choose to use this as security against a loan. With a secured personal loan, you can usually access a lower interest rate because it’s less risky for a lender to loan you money. You may also increase your borrowing capacity and get a longer loan term. The trade-off is that you give your lender the right to seize your asset if you fail to make repayments.

However, the vast majority of personal loans are unsecured, with no assets used as security against the loan. The lender’s choice to loan you money is based on how creditworthy you are. It’s an educated guess regarding whether or not they think you’ll be able to pay the money back. It’s more risk for them, so you’ll probably be offered a higher interest rate, lower loan amount or a shorter term. But there’s a quicker application and approval process, greater freedom to use the funds and your assets aren’t directly at risk.

Why choose a secured loan?
+ Lower rates
+ Increased borrowing potential
+ Longer terms available
– Can take longer to approve
– Your asset is at risk if you fail to pay

Why choose an unsecured loan?
+ Greater freedom
+ Less borrowing potential
– Shorter loan terms

And what about fixed and variable rate loans?
Every loan comes with interest, but even then, you still have options.

With a variable-rate loan, the interest rate isn’t locked in. So if the market interest rate goes up, so will your repayments. But on the flipside, when the rates go down, your repayments will too.

If you’re looking for certainty, you can fix your interest at a rate that will remain the same for the life of your loan. You’ll usually be offered a higher interest rate than for variable rate loans. But you’ll know exactly what your repayments are month to month, helping you manage your budget. Plus, If variable rates head north, you’re protected.

Just remember, depending on your lender, you may have less flexibility to make early repayments with a fixed rate. However many online loan providers offer no early repayment fees, regardless of whether your loan is fixed or variable. Be sure to check with your lender before you fix it.

Why choose a variable rate loan?
+ Usually more flexibility to repay your loan early
+ Lower repayments if interest rates go down
+ Rates are competitive
– Budgeting is harder

Why choose a fixed-rate loan?
+ Know what your repayments will be for the life of the loan
+ Easier to budget
– More likely to have early repayment fees
– May be less flexible depending on provider

Anything else to know?
That’s the big things covered. When it comes to personal loans, there are a few other terms you might have heard of.

Fixed-term vs line of credit
With a fixed-term loan, you get the money as a lump sum and agree to pay it off within a certain time period. So you know exactly how long it will take you to pay off your debt.

Alternatively, a line of credit is a type of personal loan that works more like a credit card. You can draw on the funds in the form of an ongoing credit facility and pay off the debt and accrued interest in instalments. The advantage here is that you only pay interest on the money that you actually use, versus the entire amount as would be the case with a personal loan. This is less relevant for a debt consolidation loan.

Special or limited purpose loans
Some lenders offer personal loans with lower interest rates provided the funds are used for a specific purpose.

Risk-based pricing
Most lenders give a ‘personalised’ interest rate and tailor the loans they offer. They do this through ‘risked-based’ pricing, where the rate provided is based on the probability of a borrower defaulting on a loan. To calculate this, they’ll look at your credit history, financial situation, the loan type, the loan amount and a range of other factors that are used to build your unique risk profile.

If you’re considered ‘low-risk’ and more likely to pay back the loan, you’ll be rewarded with a lower rate. If you’re ‘higher risk’, expect to get a higher rate.

Risk-based pricing has become more common with the introduction of comprehensive credit reporting (CCR). Credit providers are now required to include extra ‘positive’ information such as the type of credit you hold, the amount of credit and whether you pay your bills on time. In the past, credit reports only showed negative credit events or ‘black marks’ (e.g. missed payments or defaults), rather than giving an overall picture.

The choice is yours
When it comes to choosing which loan type is right for you, ask yourself:

What’s the interest rate like? Before choosing your loan type, you should compare debt consolidation loan rates to find the lowest possible rate available

Do you prefer a fixed or variable rate?

  • What’s the interest rate like? 
  • Before choosing your loan type, you should compare debt consolidation loan rates to find the lowest possible rate available
  • Do you prefer a fixed or variable rate?
  • Can you realistically make repayments on time?
  • What is the length of the loan?

Don’t forget to factor in any fees and charges. Once you have the big picture, you can work out how much you’ll likely save by consolidating your debt into one loan.

Not all loans are the same. The one that’s right for you will depend on how much you owe and how easily you can pay it back.

It really comes down to finding the one that’s the best for you. So how can you decide which lender to go with and what repayments and loan terms to agree to? First, you’ll need to take stock of your situation and make a few key decisions.

Planning and considering your situation upfront will help when comparing which debt consolidation loan products are available that might really fit your needs, and offer the best value.

1. Loan amount: How much do you really need?
To decide how much you need to borrow, do some research and budgeting to work out how much (approximately) you are going to need to take control of your finances. In the case of debt consolidation, it helps to know exactly which debts you are consolidating to really have a handle on how much money you have outstanding.

It’s smart to only borrow what you really need, but you also don’t want to have to look for additional finance to get on top of bills that might be just around the corner.

2. Repayments: How much can you afford to repay?
This is key for those borrowing for debt consolidation. Now is the time to take a closer look at your everyday budget, (or to create one), to see how much you can realistically afford to put towards repayments. Be sure to give yourself a bit of a buffer; failure to make a loan repayment at any time can cost you penalty fees and won’t do your credit score any favours.

Are you expecting any changes in income in the next few years, changing where or how much you work or perhaps hoping to have a baby? Be sure to build this in.

Whether you receive your income weekly, fortnightly or monthly, you need to know how much you have leftover at the end of each pay period and how this will align with your repayments. It may be worth opening a separate bank account for your repayments and transferring funds for loan payments in on payday so you are never caught out.

3. Loan term: How long will you need to repay?
Divide the planned loan amount by your planned monthly repayment to get a ballpark amount of time you’ll need to repay the loan. For example, Tim calculated that he needed to borrow $24,000 to get on top of his student debt, credit cards and to pay off the rest of his car loan. Based on his salary and existing expenses, he thought $120 per week/$480 per month would be an affordable repayment.  This would be $5,760 per year, meaning in 5 years he’d have paid $28,800 — roughly the full amount, accounting for interest and charges.

A longer-term loan might seem attractive as it means lower monthly repayments, however the overall (lifetime) cost of the loan is significantly higher because you’ll pay more in interest, and potential fees. That being said, provided you look for a loan with flexible repayments, you’ll be able to take advantage of any future increases in salary that may allow you to pay down your loan faster without penalty.

4. Loan type: Decide between a secured or unsecured loan
Do you have an asset that you are willing, or able, to put up as security against the loan? Perhaps property, or a new or nearly new car? If you are confident in your ability to repay the loan, a secured loan will get you a better rate and may unlock access to greater funds. Be aware, however, that your asset will be at risk if you can’t make the repayments.

5. Compare: Start to request and examine your personalised offers
Now you know roughly how much you need to borrow, what you can afford as a repayment and how long you’ll need to repay your loan. Next, you can start to plug these values directly into lender or comparison sites to get an estimate of your personalised interest rate and repayments. 

Experiment with different combinations, such as different loan terms or repayment amounts and match them against your needs. Need more help deciding? There are many third-party agencies (which don’t sell loans) that both rate and compare a broad range of loans.

Canstar is one of the most established financial comparison sites, and they’ve been comparing products without bias since 1992.

They release annual star ratings for a range of debt consolidation loans from many providers. To do this, Canstar comprehensively and rigorously examines a broad range of loans available across Australia.  To come up with an overall score, they award points for:

  • Price — comparative pricing factoring in interest and fees
  • Features — like the complexity of the application, the time involved before settlement, product management, customer service and loan closure

These are then aggregated and weighted to produce a total score. This means Canstar’s ratings are reputable and transparent, so you can trust the information they provide but still dig deeper if you want to. Other comparison sites can also be useful, however, you should always check around, as some may have a ‘sales’ element, that is, they may receive money for the people that visit their website en route to a particular lender.

So if the best rate isn’t being offered, it may not show up on their comparison. They also have ‘promoted’ or ‘featured’ loans, which they are paid to highlight, even if those loans don’t truly reflect the best value loans on the market. 

Another way to get information on your lender and loan is to read feedback from real, verified customers on ProductReview.com.au. You’ll be able to read customer reviews that rate the best debt comparison loan providers and explain what they liked best about their service. 

What questions should I ask to choose the best debt consolidation loan?

  • What is the interest rate and the comparison rate?
  • How do these rates compare to other loans?
  • What are the fees and charges? (e.g. upfront, ongoing, early exit)
  • What are the terms and conditions?
  • Do the loan term and loan amount fit your unique needs?
  • Can you definitely afford the repayments?
  • Are you comfortable with the lender? Have you checked its reputation and accreditation?

Comparison rate

Comparison rates are a good starting point, but you still need to decide what will work best for you. The costs involved in securing the finance are a major factor, but once you’ve shortlisted a few loans that seem similar enough from that perspective, make time for these final checks:

  • Are there flexible repayment options? Usually, you can choose between weekly, fortnightly or monthly repayments according to what suits your pay cycle. However, not all lenders offer this;  this may or may not matter to you
  • Compare a loan’s conditions and fees around making extra repayments and paying the loan off before the end of the term. This can be a great way to reduce the overall cost of your loan, but not if you’ll incur extra penalties
  • Can you use the funds for what you need the loan for? You can’t always use the borrowed money for whatever you like. Some lenders don’t allow you to take out a debt consolidation loan for business purposes. Most won’t allow you to pay debts overseas. Debt consolidation loans are usually extremely flexible, however, do make sure your plans match the lender’s policies
  • What are the options for managing the loan over time? Check and compare how easy the loan will be to manage

The processing of the repayments, changing your personal details, any refinancing requests you may want to explore down the track. The option to manage your account online is often available but not always, and some lenders have more functionality than others. Using direct debit for repayments is common, yet without it, monthly repayments will be much less convenient and you are more likely to be penalised for late payments if you aren’t perfectly disciplined.

By taking stock of your complete financial situation up front, you’ll be confident that you’re moving forward financially. You’ll be better able to compare the different debt consolidation loans on the market and be equipped to choose the one that is best suited to you.


 

One low rate, one better life

When it comes to your money, you're in charge. For a
clearer picture, consolidate your debt with a lower rate.

One low rate, one better life

When it comes to your money, you're in charge. For a
clearer picture, consolidate your debt with a lower rate.

Debt consolidation, explained

A debt consolidation loan is very similar to a personal loan, with one key difference: it’s there to help you pay for what you’re already paying for.

If you have multiple debts – such as a credit card debt, car loan, medical bills, bank overdraft charges, and so on – managing all your monthly repayments can feel overwhelming. Debt consolidation loans let you roll all of your debts together and pay them off together ­– in one handy payment and usually at a more competitive interest rate.

Lighten your load
Debt consolidation is a way of streamlining all the money you owe. These loans generally allow you to enjoy a lower interest rate than you would receive with a credit card. You’ll no longer have the hassle of multiple monthly payments and you also might be able to make early repayments if your bank balance is looking healthy. This may mean you can pay down your debt faster, helping you save in interest and getting you out of debt sooner.

But just like any other personal loan, they come in a few different shapes and sizes. Here are the two main ways to tell them apart.

Secured or unsecured
You can often access a better rate if you’re willing to put up an asset as security against the loan. Just remember, with a secured loan, the lender has the right to repossess the asset if you can’t repay the debt.

Fixed or variable
If you’re looking for complete control over your money, you can choose to fix your loan, meaning you’ve locked in your interest rate and you can work out the exact total cost of your loan, down to the cent. Or you can keep the rate variable and see where the market takes you.

How much can I borrow?
You can borrow between $2,000 and $50,000 or more, across a range of loan terms, from 1 to 7 years. The loan is paid back in regular instalments (weekly, fortnightly or monthly) with interest, which may be fixed or variable across the life of the loan.

Put your good credit history to work with a personal loan for debt consolidation.

Wondering how to consolidate debt? Debt consolidation loans aren’t a big mystery – they’re simply personal loans specifically for debt consolidation. To understand them, you simply need to understand loans.

What to look for in a debt consolidation loan:
Whether it’s a personal loan for holiday or a personal loan for debt consolidation, all loans have the same building blocks. It’s about finding the right fit for you.

Interest rate
Money costs money. So when you borrow it, you need to pay it back with interest. The interest rate, also known as Annual Percentage Rate (APR) or Advertised Rate, is the percentage that you’ll pay on top of the amount you borrow. It’s usually expressed as an annual rate.

How is interest calculated? To work out your rate, lenders will factor in things like your credit history, your repayment schedule, the risk (both for lending to you and how the market is going) and their underlying costs.

Most lenders start with a headline advertised rate – the lowest rate they have available. But they might not offer you this rate – it’s usually only available to a small proportion of borrowers and may come with set conditions to qualify (e.g. a high credit rating plus homeownership).

So, it pays to do your research. Before you apply anywhere, get a personalised rate from a number of providers. Just be sure that the lender’s quote process is ‘credit score friendly’. That is, they only conduct a soft check on your credit file which won’t impact your credit score.

Remember, the loan with the lowest interest rate might not necessarily be the best loan for you. Be sure to consider the total cost of the loan including interest, fees and other costs to truly assess the value of any interest rate on offer.

Comparison rate
Interest isn’t the only cost of a loan; it will usually come with fees and other charges. These can be quite significant and quickly outweigh a great rate. To avoid getting caught out, look at the comparison rate, which factors in the interest rate and any fees, expressed as an annual percentage. The comparison rate is usually higher than the interest rate charged on the loan.

Because it’s so important, lenders and brokers must provide a comparison rate when they advertise a loan interest rate under the National Consumer Credit Protection Regulations.

How is it measured?
For personal loans, there is a standardised measure for how comparison rates are to be calculated and displayed. For variable and fixed-rate personal loans, the comparison rate is based on a $30,000 unsecured loan over 5 years.

But there’s a catch – not all costs are included. So you don’t get an unwelcome surprise later, you still need to factor in:

  • Late payment fees
  • Break costs or early termination fees
  • Deferred establishment fees
  • Broker fees (when taking out a loan through a broker, the broker’s service fees aren’t included in the comparison rate, which can be significant)
  • Repayments

Once you’ve got all your ducks in a row and consolidated your debt into one loan,it’s time to repay the money. During the loan process you’ll agree to a regular schedule for repayments – either weekly, fortnightly or monthly. Factor these repayments into your budget and be sure that your loan repayment calculations have been quoted inclusive of any ongoing fees.

Your lenders might also offer a balloon payment, which is a lump sum repayment you make at the end of the loan term. It can reduce your regular repayments, making it a handy way to manage your cash flow. But remember, the lump sum is due at the end of the loan, so you still need to find the money along the way. You’ll also be paying interest on a higher loan balance as you go.

Upfront fees
Also known as application or establishment fees, they’re ‘one-time’ charges at the start of a loan that get the ball rolling. They can include:

  • A flat fee (e.g. $499) that applies regardless of the value of the loan
  • A tiered fee (e.g. $250, $500, $750) based on the value of the loan
  • A percentage fee (e.g. 3%) based on the total amount borrowed and the credit or risk profile of the customer
  • A hybrid fee (e.g. $200 + 2% of the loan amount)

Your lender may charge any or all of these, it’s up to them.

But, fun fact, even though they’re called ‘up front’, that’s not when you pay them. Establishment fees are usually capitalised to the loan, meaning they’re added to your loan balance.

That means you’ll be paying interest on those fees as part of your total loan. The difference might be only a few dollars on each repayment if it’s a small upfront fee. But if it’s bigger, it can quickly add up.

Monthly or ongoing fees
Your lender may charge any or all of these, it’s up to them.

Even though they’re called ‘upfront,’ that’s not when you pay them. Establishment fees are usually capitalised to the loan, meaning they’re added to your loan balance.

That means you’ll be paying interest on those fees as part of your total loan. The difference might be only a few dollars on each repayment, if it’s a small upfront fee. But if it’s bigger, it can quickly add up.

Also known as account keeping or loan management fees, ongoing fees are usually paid monthly across the life of a loan. They don’t reduce what you owe at all, they just go straight to the lender. Generally the lower the fees, the better. But again, it’s all relative to the total amount you repay when you factor in all interest payable and costs.

Brokerage fees
If you use a broker to help track down your loan for you, remember they’re doing a job. That means you’re paying them, whether you realise it or not.

In the case of personal loans, the brokerage fee is often capitalised to the loan amount and is in addition to the lender’s own upfront fee. Brokers can also have commission arrangements with lenders that are either built into your interest rate or offer them a return based on the final rate you accept. Be sure to factor that in when deciding if their services are worth it.

Penalty fees
Nobody ever takes out a loan expecting to pay penalty fees. But life doesn’t always go to plan. The best you can do is try and minimise the damage.

The most common penalty fee is the ‘default’ or missed payment fee. If you make a payment late, or there are insufficient funds in your nominated account on the day a payment is due, you can get slugged with this fee.

Late fees vary from $10 to as much as $35. Some lenders may waive the fee if your account is brought up to date within 3 days of a missed payment, but it’s best not to risk it. Be sure to keep an eye on your spending and make sure you have enough in your account to pay the loan. Some borrowers even set up a separate account dedicated to paying their loan.

Early repayment fees
If you think you want to pay your loan down ahead of schedule, look for a loan with low or no early repayment fees. Otherwise, all your hard work may go to waste if you get charged for it.

Exit fees or early repayment fees are more common with secured low-rate loans. There are different types

Ongoing fees, also known as account keeping or loan management fees, are usually paid monthly across the life of a loan. They don’t reduce what you owe at all, they just go straight to the lender. Generally the lower the fees, the better. But again, it’s all relative to the total amount you repay when you factor in all interest payable and costs.

Brokerage fees
If you use a broker to help track down your loan for you, remember they’re doing a job. That means you’re paying them, whether you realise it or not.

In the case of personal loans, the brokerage fee is often capitalised to the loan amount and is in addition to the lender’s own upfront fee. Brokers can also have commission arrangements with lenders that are either built into your interest rate or offer them a return based on the final rate you accept. Be sure to factor that in when deciding if their services are worth it.

Penalty fees
Nobody ever takes out a loan expecting to pay penalty fees. But life doesn’t always go to plan. The best you can do is try and minimise the damage.

The most common penalty fee is the ‘default’ or missed payment fee. If you make a payment late, or there are insufficient funds in your nominated account on the day a payment is due, you can get slugged with this fee.

Late fees vary from $10 to as much as $35. Some lenders may waive the fee if your account is brought up to date within 3 days of a missed payment, but it’s best not to risk it. Be sure to keep an eye on your spending and make sure you have enough in your account to pay the loan. Some borrowers even set up a separate account dedicated to paying their loan.

Early repayment fees
If you think you want to pay your loan down ahead of schedule, look for a loan with low or no early repayment fees. Otherwise, all your hard work may go to waste if you get charged for it.

Exit fees or early repayment fees are more common with secured low-rate loans. There are different types:

  • A fixed fee where the loan is repaid in full any time prior to the end of the loan term (e.g. $500)
  • A fixed fee where the loan is repaid in full prior to a minimum period (e.g. $250 if full repayment is made less than 2 years into a 5-year loan)
  • A variable fee based on the amount you would have paid in interest and fees had the loan run to full term

Loan amount
How much money do you need to repay your existing debt? Add it up and that’s your loan amount (plus those upfront fees). This is the principal part of your loan that you’ll make repayments on. Interest is charged on the outstanding balance of your loan.

In Australia, debt consolidation loans usually range from $2,000 to $50,000, but some lenders will go higher.

Loan term
A debt consolidation loan gives you the space you need to pay off your debt over time. In Australia, lenders offer loan terms between 1 and 7 years, with 3, 5 and 7 year terms being the most common.

If you’re tempted to take your time, just remember, a longer-term loan might have a higher interest rate, meaning loan will cost you more overall. But when it comes to cash in the bank, your monthly repayments will be lower. Do your sums and choose what’s right for you.

Customer experience
Whilst not technically part of your loan, it’s the X factor that can make all the difference on your journey to financial freedom. Because the best way to consolidate debt into one payment is with a lender that cares.

You want a lender who makes it quick and easy to apply, get approved and manage your loan. And if you have a problem, you want a lender that cares about your experience. It can go a long way towards trusting you’re getting the best deal.

Anything else?
A debt consolidation loan can affect your credit score, and unfortunately, things usually get worse before they get better. Opening a new credit account temporarily lowers your credit score. Lenders look at new credit as a new risk, causing a temporary dip in your score. You can fix this by paying your new consolidated debt on time – that should bump it up higher than before.

Know your debt consolidation home loan from your fixed-rate unsecured personal loan? You soon will.

Debt comes in many forms. From credit cards to car loans, it can quickly add up. Keeping it under control can be a challenge. That’s why consolidating your debt into just one loan can be a clever idea. It makes life easier with just one loan to pay, and you might even save money on interest, fees and charges. But how do you do it? We talk you through the ins and outs, from a debt consolidation home loan to a shiny new personal loan in all their different forms.

Add to existing debt or start fresh?
When you’re looking at streamlining your finances, you’ll be getting up close and personal with your debt. You might think it’s easiest to simply work with what you’ve got. For many people, that means refinancing their mortgage.

With a debt consolidation home loan, you combine all your outstanding debt into your home loan, essentially increasing your home loan. Just remember, although it makes payments easier, home loans have a longer loan term, so you’ll have a greater number of monthly repayments over time. That means you may end up paying more interest in the long run, costing you more.

If you want to keep your mortgage separate (or you don’t own a home), you can simply take out a personal loan to consolidate your debt.

To secure or not to secure?
If you own something of value like a car, home or term deposit, you can choose to use this as security against a loan. With a secured personal loan, you can usually access a lower interest rate because it’s less risky for a lender to loan you money. You may also increase your borrowing capacity and get a longer loan term. The trade-off is that you give your lender the right to seize your asset if you fail to make repayments.

However, the vast majority of personal loans are unsecured, with no assets used as security against the loan. The lender’s choice to loan you money is based on how creditworthy you are. It’s an educated guess regarding whether or not they think you’ll be able to pay the money back. It’s more risk for them, so you’ll probably be offered a higher interest rate, lower loan amount or a shorter term. But there’s a quicker application and approval process, greater freedom to use the funds and your assets aren’t directly at risk.

Why choose a secured loan?
+ Lower rates
+ Increased borrowing potential
+ Longer terms available
– Can take longer to approve
– Your asset is at risk if you fail to pay

Why choose an unsecured loan?
+ Greater freedom
+ Less borrowing potential
– Shorter loan terms

And what about fixed and variable rate loans?
Every loan comes with interest, but even then, you still have options.

With a variable-rate loan, the interest rate isn’t locked in. So if the market interest rate goes up, so will your repayments. But on the flipside, when the rates go down, your repayments will too.

If you’re looking for certainty, you can fix your interest at a rate that will remain the same for the life of your loan. You’ll usually be offered a higher interest rate than for variable rate loans. But you’ll know exactly what your repayments are month to month, helping you manage your budget. Plus, If variable rates head north, you’re protected.

Just remember, depending on your lender, you may have less flexibility to make early repayments with a fixed rate. However many online loan providers offer no early repayment fees, regardless of whether your loan is fixed or variable. Be sure to check with your lender before you fix it.

Why choose a variable rate loan?
+ Usually more flexibility to repay your loan early
+ Lower repayments if interest rates go down
+ Rates are competitive
– Budgeting is harder

Why choose a fixed-rate loan?
+ Know what your repayments will be for the life of the loan
+ Easier to budget
– More likely to have early repayment fees
– May be less flexible depending on provider

Anything else to know?
That’s the big things covered. When it comes to personal loans, there are a few other terms you might have heard of.

Fixed-term vs line of credit
With a fixed-term loan, you get the money as a lump sum and agree to pay it off within a certain time period. So you know exactly how long it will take you to pay off your debt.

Alternatively, a line of credit is a type of personal loan that works more like a credit card. You can draw on the funds in the form of an ongoing credit facility and pay off the debt and accrued interest in instalments. The advantage here is that you only pay interest on the money that you actually use, versus the entire amount as would be the case with a personal loan. This is less relevant for a debt consolidation loan.

Special or limited purpose loans
Some lenders offer personal loans with lower interest rates provided the funds are used for a specific purpose.

Risk-based pricing
Most lenders give a ‘personalised’ interest rate and tailor the loans they offer. They do this through ‘risked-based’ pricing, where the rate provided is based on the probability of a borrower defaulting on a loan. To calculate this, they’ll look at your credit history, financial situation, the loan type, the loan amount and a range of other factors that are used to build your unique risk profile.

If you’re considered ‘low-risk’ and more likely to pay back the loan, you’ll be rewarded with a lower rate. If you’re ‘higher risk’, expect to get a higher rate.

Risk-based pricing has become more common with the introduction of comprehensive credit reporting (CCR). Credit providers are now required to include extra ‘positive’ information such as the type of credit you hold, the amount of credit and whether you pay your bills on time. In the past, credit reports only showed negative credit events or ‘black marks’ (e.g. missed payments or defaults), rather than giving an overall picture.

The choice is yours
When it comes to choosing which loan type is right for you, ask yourself:

What’s the interest rate like? Before choosing your loan type, you should compare debt consolidation loan rates to find the lowest possible rate available

Do you prefer a fixed or variable rate?

  • What’s the interest rate like? 
  • Before choosing your loan type, you should compare debt consolidation loan rates to find the lowest possible rate available
  • Do you prefer a fixed or variable rate?
  • Can you realistically make repayments on time?
  • What is the length of the loan?

Don’t forget to factor in any fees and charges. Once you have the big picture, you can work out how much you’ll likely save by consolidating your debt into one loan.

Not all loans are the same. The one that’s right for you will depend on how much you owe and how easily you can pay it back.

It really comes down to finding the one that’s the best for you. So how can you decide which lender to go with and what repayments and loan terms to agree to? First, you’ll need to take stock of your situation and make a few key decisions.

Planning and considering your situation upfront will help when comparing which debt consolidation loan products are available that might really fit your needs, and offer the best value.

1. Loan amount: How much do you really need?
To decide how much you need to borrow, do some research and budgeting to work out how much (approximately) you are going to need to take control of your finances. In the case of debt consolidation, it helps to know exactly which debts you are consolidating to really have a handle on how much money you have outstanding.

It’s smart to only borrow what you really need, but you also don’t want to have to look for additional finance to get on top of bills that might be just around the corner.

2. Repayments: How much can you afford to repay?
This is key for those borrowing for debt consolidation. Now is the time to take a closer look at your everyday budget, (or to create one), to see how much you can realistically afford to put towards repayments. Be sure to give yourself a bit of a buffer; failure to make a loan repayment at any time can cost you penalty fees and won’t do your credit score any favours.

Are you expecting any changes in income in the next few years, changing where or how much you work or perhaps hoping to have a baby? Be sure to build this in.

Whether you receive your income weekly, fortnightly or monthly, you need to know how much you have leftover at the end of each pay period and how this will align with your repayments. It may be worth opening a separate bank account for your repayments and transferring funds for loan payments in on payday so you are never caught out.

3. Loan term: How long will you need to repay?
Divide the planned loan amount by your planned monthly repayment to get a ballpark amount of time you’ll need to repay the loan. For example, Tim calculated that he needed to borrow $24,000 to get on top of his student debt, credit cards and to pay off the rest of his car loan. Based on his salary and existing expenses, he thought $120 per week/$480 per month would be an affordable repayment.  This would be $5,760 per year, meaning in 5 years he’d have paid $28,800 — roughly the full amount, accounting for interest and charges.

A longer-term loan might seem attractive as it means lower monthly repayments, however the overall (lifetime) cost of the loan is significantly higher because you’ll pay more in interest, and potential fees. That being said, provided you look for a loan with flexible repayments, you’ll be able to take advantage of any future increases in salary that may allow you to pay down your loan faster without penalty.

4. Loan type: Decide between a secured or unsecured loan
Do you have an asset that you are willing, or able, to put up as security against the loan? Perhaps property, or a new or nearly new car? If you are confident in your ability to repay the loan, a secured loan will get you a better rate and may unlock access to greater funds. Be aware, however, that your asset will be at risk if you can’t make the repayments.

5. Compare: Start to request and examine your personalised offers
Now you know roughly how much you need to borrow, what you can afford as a repayment and how long you’ll need to repay your loan. Next, you can start to plug these values directly into lender or comparison sites to get an estimate of your personalised interest rate and repayments. 

Experiment with different combinations, such as different loan terms or repayment amounts and match them against your needs. Need more help deciding? There are many third-party agencies (which don’t sell loans) that both rate and compare a broad range of loans.

Canstar is one of the most established financial comparison sites, and they’ve been comparing products without bias since 1992.

They release annual star ratings for a range of debt consolidation loans from many providers. To do this, Canstar comprehensively and rigorously examines a broad range of loans available across Australia.  To come up with an overall score, they award points for:

  • Price — comparative pricing factoring in interest and fees
  • Features — like the complexity of the application, the time involved before settlement, product management, customer service and loan closure

These are then aggregated and weighted to produce a total score. This means Canstar’s ratings are reputable and transparent, so you can trust the information they provide but still dig deeper if you want to. Other comparison sites can also be useful, however, you should always check around, as some may have a ‘sales’ element, that is, they may receive money for the people that visit their website en route to a particular lender.

So if the best rate isn’t being offered, it may not show up on their comparison. They also have ‘promoted’ or ‘featured’ loans, which they are paid to highlight, even if those loans don’t truly reflect the best value loans on the market. 

Another way to get information on your lender and loan is to read feedback from real, verified customers on ProductReview.com.au. You’ll be able to read customer reviews that rate the best debt comparison loan providers and explain what they liked best about their service. 

What questions should I ask to choose the best debt consolidation loan?

  • What is the interest rate and the comparison rate?
  • How do these rates compare to other loans?
  • What are the fees and charges? (e.g. upfront, ongoing, early exit)
  • What are the terms and conditions?
  • Do the loan term and loan amount fit your unique needs?
  • Can you definitely afford the repayments?
  • Are you comfortable with the lender? Have you checked its reputation and accreditation?

Comparison rate

Comparison rates are a good starting point, but you still need to decide what will work best for you. The costs involved in securing the finance are a major factor, but once you’ve shortlisted a few loans that seem similar enough from that perspective, make time for these final checks:

  • Are there flexible repayment options? Usually, you can choose between weekly, fortnightly or monthly repayments according to what suits your pay cycle. However, not all lenders offer this;  this may or may not matter to you
  • Compare a loan’s conditions and fees around making extra repayments and paying the loan off before the end of the term. This can be a great way to reduce the overall cost of your loan, but not if you’ll incur extra penalties
  • Can you use the funds for what you need the loan for? You can’t always use the borrowed money for whatever you like. Some lenders don’t allow you to take out a debt consolidation loan for business purposes. Most won’t allow you to pay debts overseas. Debt consolidation loans are usually extremely flexible, however, do make sure your plans match the lender’s policies
  • What are the options for managing the loan over time? Check and compare how easy the loan will be to manage

The processing of the repayments, changing your personal details, any refinancing requests you may want to explore down the track. The option to manage your account online is often available but not always, and some lenders have more functionality than others. Using direct debit for repayments is common, yet without it, monthly repayments will be much less convenient and you are more likely to be penalised for late payments if you aren’t perfectly disciplined.

By taking stock of your complete financial situation up front, you’ll be confident that you’re moving forward financially. You’ll be better able to compare the different debt consolidation loans on the market and be equipped to choose the one that is best suited to you.


 

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