How to get best loans in Australia 2018

How to get best loans in Australia 2018

How do personal loans actually work?

  • A personal loan is a secured or unsecured line of credit up to $100,000 over five or seven years. You can use the money for a range of purposes, such as buying a car, consolidating debt, paying for a wedding or even taking a holiday. Personal loans are an agreement between you and a lender for you to have a certain amount of money and pay it back over time. Here is how personal loans work:
  • Application and approval. You can apply for a personal loan from a bank, credit union or standalone lender online, over the phone or in-branch, depending on what application types the lender offers. The time it takes to be approved depends on the lender, but it can range from anywhere between 60 seconds to a week or two.
  • Loan contract. When you are approved for a loan you will need to agree to a loan contract that sets out certain terms. These terms include long you’ll have to repay the loan, what fees you’ll need to cover, and the rate of interest you’ll be charged on your loan amount.
  • Loan terms. Your loan terms will be set out in your loan contract. Generally, loan terms range between one and seven years.
  • Loan costs. Lenders agree to lend you money in exchange for interest, which is charged annually. This interest can be fixed or variable. Other loan costs include establishment fees, monthly fees, and annual fees. You should also check if you will be charged fees for repaying your loan early or making additional repayments.
  • Loan types. There is a wide variety of personal loans available in the market, with each one coming with a set of terms and restrictions. For instance, when you apply for a car loan the lender often requires that the entire loan amount is used for your car purchase. The car is also often required to be used as security in case you default on the loan. An unsecured personal loan, on the other hand, is less restrictive and you can use the loan amount in almost any way you choose.

What types of home loans are on offer? 

Home Loan Image 2018

Variable rate loan

A variable rate home loan has an interest rate which can fluctuate as your lender responds to economic factors such as the cost of funding, the Reserve Bank of Australia’s official cash rate decisions each month and more. This means over the course of a year, your home loan rate (and your periodic repayments) might increase or decrease. In Australian history, variable interest rates have seen highs of around 17%, and lows around 3%.

Variable rate home loans contrast with fixed rate home loans, where you enter into an agreement with your lender for a predetermined period of time, usually between one to five years, during which your interest rate won’t change. There are also mixtures of variable rate and fixed rate home loans known as split rate loans, and these allow you to split your home loan into two or more portions and allocate variable or fixed rates to each portion.

Fixed rate loans

Most fixed rate loan terms vary from one to five years.

When you apply for a fixed rate home loan, your lender will typically offer you something called a rate lock. There’s a chance that interest rates will change between the time you apply and when you settle so a rate lock ensures that the rate you applied for stays with you through that process, which is usually about a month.

Unlike a variable rate home loan, additional repayments are either not allowed or limited to a certain amount each year. This is because your lender has secured your home loan from funding sources at a fixed rate as well, and paying your loan off early could result in financial loss for your lender.

Additional repayments have another effect on fixed-rate loans, which doesn’t apply to variable rate loans —early repayment fees. Paying off a fixed rate home loan during the fixed term usually comes with early repayment fees, also known as break costs. Break costs are determined using the amount of time you still have left in your term, the amount you borrowed, and the interest rate you locked in compared to what your lender secured funds for.

Fixed rate home loans also usually don’t offer features such as 100% offset accounts, although some fixed home loans will offer a partial offset account. Otherwise, a fixed rate home loan works in the same way as a variable home loan: you make your repayments each week, fortnight or month.

Interest-only loans

The Australian Prudential Regulation Authority (APRA), the body that regulates Australian banks, has put a 30% cap on new interest-only lending. That means interest-only loans can only account for 30% of all the new home loans written by banks. You’ll be competing against a lot of other investors to be part of that 30%.

With that in mind, there are some things you can do to help your chances:

  • Have a bigger deposit. Many banks are more willing to consider an interest-only home loan if you have a lower loan-to-value ratio (LVR). A bigger deposit, usually at least 20%, will make you a more attractive borrower.
  • Have a plan. Lenders will want to know why you want an interest-only home loan versus a principal and interest loan. If you can explain your justification for the loan and demonstrate your investment plans, you’ll be in a much better position.
  • Consider a non-bank lender. Non-bank lenders are unique in that they raise funds through wholesale markets rather than customer deposits. Because of this, they’re not held to the same capital requirements as banks. While non-banks are regulated and have to abide by responsible lending obligations, they’re not restricted by the same concrete speed limit on interest-only lending.

Mortgage Directory provides you personal service and expert advice to help you to find funding to meet your needs. With a large network of lending institutions at our fingertips, we can assist you in making a well informed decision.

We have over 20 years experience in the industry, having worked with and gained extensive and valuable experience with some major players in the industry.

Leave a Reply

Your email address will not be published. Required fields are marked *