What a time to be a loan: August 2019 sees $30bn personal loan spike
Despite a $5 billion fall over the previous 12 months, Australia has seen a dramatic increase in personal loans over June-August 2019.
According to the Reserve Bank of Australia (RBA) statistics, personal loan borrowing has reached new heights Australia-wide. Despite a change in the way data has been collected over this period, the data shows a dramatic increase of $30 billion in outstanding personal loan amounts between June and August 2019. This is compared to a $5 billion decrease in the number of personal loans during 2018. This is in relation to eight million Aussie loan customers with more than $173 billion in outstanding personal loans between them.
This research has come to light even during Australia's burgeoning love affair with interest-free "buy now, pay later" providers, and with peer-to-peer lending platforms still on the rise. Peer-to-peer lender RateSetter even reported an increase of $14 million and 800 more personal loans between the second and third quarters of 2019. So why are more Australians taking out personal loans than ever before, and what advice can we give them?
Why Aussies take out personal loans
There are numerous reasons as to why people take out personal loans, whether they be for planned expenses or unexpected financial emergencies. The statistics show that:
- 88% of personal loans are taken out for planned purchases. These purchases included weddings, holidays, car loans, education costs and home renovation expenses.
- 12% of personal loans are taken out for unplanned purchases. These included emergency car repairs/maintenance, medical bills or household emergencies.
Personal loans play a crucial role in a huge number of Australian households. In an ideal world, getting into debt wouldn't be an essential part of life, but it is the case for a lot of people. Taking out a personal loan can help to cover necessary expenses and can help people to manage costs that they would otherwise not have the personal savings to cover.
But how can people protect themselves against getting a bad deal?
5 tips on what to look out for when taking out a personal loan
Despite the rise in "buy now, pay later", personal loan borrowing shows no sign of letting up yet. For people considering taking out a personal loan, here's what you should consider and how to find the loan that's right for you:
1. Always check the fees and charges
While the rate might seem like the only aspect of a loan that you should focus on, there are usually a number of additional fees and charges associated with most personal loans.
Prospective borrowers should always double-check these fees before submitting an application or agreeing to a loan contract. The lowest rate won't always be the best loan for people in certain situations.
2. Repayment flexibility
Prospective personal loan borrowers should always consider their income and their ability to repay a loan. Getting a loan that requires weekly repayments when you're paid monthly may not suit your circumstances.
You may also want the ability to make extra repayments without penalty, if you are able to, as this could save you money over the life of your loan.
3. Ensure the loan term meets your lifestyle
While a longer loan term might seem more convenient because the regular repayments are significantly lower, personal loan lenders charge interest rates and fees that will result in you paying more money over the life of the loan.
That being said, if you know that high repayments won't suit your budget, then a longer loan term may be better for you.
4. "Spend low, save high"
Bessie Hassan, money expert at Finder, says that time is money when you have a personal loan. It's almost always advisable to shave a little off your spending where possible and push that money towards repaying your personal loan.
You should also make an effort to make extra loan repayments where possible. Spending more now to potentially pay off your loan early will save you money in the long run.
5. Keep an eye on the market
There is such a huge variety of personal loan products on the market at the moment. Lenders also offer a range of products to suit different borrowers in different circumstances, so you should always be on the lookout for a better deal.
There are also a number of "buy now, pay later" services offering interest-free credit to buyers of (generally) smaller purchases. If you're looking to make a smaller purchase, you might qualify for interest-free finance.
For prospective loan applicants, a personal loan can be an excellent way of managing your finances. However, borrowers should always compare loans as thoroughly as possible prior to submitting an application in order to find the loan that is best suited to their circumstances.
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