Which places in Australia want the biggest personal loans?
Our borrowing habits suggest a variation on the seven-year itch.
Personal loans occupy an interesting middle ground between the spend-as-you-need-it approach of a credit card and the plan-carefully-and-pay-off-over-a-long-time model that underpins mortgages. The interest rates charged reflect that.
On a credit card, you can pay as much as 20%, while on a mortgage, you may be able to score under 4% right now following the recent rate cut. On a personal loan you’ll typically pay between 12% and 16% for an unsecured loan, with lower rates available for secured loans where the lender can sell off what you buy if it all goes pear-shaped.
Personal loan terms typically run from one to seven years, but which options are the most popular? An analysis of visits to finder’s personal loans calculator shows some interesting variations between Australia’s states.
One trend that’s evident across the board: the most popular loan term to check the repayments for is seven years. I think there are two factors at play there. Firstly, for debts that we expect to pay off over a shorter time period, we're rather more likely to simply turn to our credit cards rather than seeking out a separate loan. That isn't always the wisest move financially, but if a line of credit already exists, the chances are we'll use it.
Secondly, any kind of calculation involving a seven-year period feels trickier because seven is an awkward prime number. Again, in reality calculating interest periods over any time period is fiddly mental maths that most of us would prefer to avoid, but I suspect that does influence the choices people make.
That said, the amounts researched vary widely. In Adelaide, the most popular calculation is for a $50,000 loan over seven years. In Brisbane, it's a $30,000 loan over the same time period. Melbourne drops the barrier even further, with the most common calculation for $22,700 over seven years (an oddly precise figure which sounds like it might be for a cheap car). Sydney residents up the numbers a little, with $30,000 loans the most common request. Perth, however, takes the cheapskate prize, with a $20,000 loan the most frequent investigation.
Whatever the amount, doing your research makes sense. A $50,000 loan paid off over seven years at 14.5% per annum will have a repayment of $951 a month. Over that same period, you'll pay $29,873 in interest. Dropping the rate by just 0.5% will save you more than $1,000 over the life of the loan. The lesson, as ever, is to shop around.
Angus Kidman's Findings column looks at new developments and research that help you save money, make wise decisions and enjoy your life more. It appears Monday through Friday on finder.com.au.