Compare personal loan rates before you commit
Although it might seem like it, banks are not the only place you can borrow money from. Building societies, or even a credit union might have a better value way to lend money. A little bit of personal financial planning, through comparing loan options, can go a long way in helping you dodge unnecessary fees.
Personal loan rates and rules will vary depending on where you borrow the money from, as well as how much you intend to borrow. In addition, do some extra personal financial planning by working out the entire cost of the loan, accounting for interest and fees. Remember, a cheap interest rate does not necessarily mean a cheap loan. Weigh up all the costs and the rates, to compare products.
One way to quickly scan the personal loan market is to do an online search of current providers. In fact, there is often a huge range between minimum and maximum personal loan rates, as shown in Canstar’s latest Personal Loans report:
But don’t forget to balance a low rate against any fees you might encounter with low personal loan rates. It’s no good saving money on the interest rate if you’re paying through the nose in fees!
Here’s a breakdown of fees for personal loan products on Canstar’s database.
|Application Fee ($)||Ongoing Fee ($)||Application Fee ($)||Ongoing Fee ($)|
Source: Canstar database
Bargain with the bank before you borrow money
When it comes time to borrow money, it’s easy to think of it as a one-sided transaction; you need the loan and they front up with the cash. But, in reality, your business is often extremely valuable to financial institutions. Borrowers often don’t realise they are good customers. The more a borrower owes the bank or other lender, the better the customer they are – provided they’re making repayments. Another top tip for personal financial planning is to ask the lender if they have another product with a better rate, or if they can drop the rate they’re offering. Some banks offer free overdrafts for new graduates and those who have just completed an apprenticeship, as well as student overdrafts for those still studying. If you don’t ask the question you might not be offered a cheaper product.
Quick tips on negotiating with the bank
Having the upper hand in negotiations
|Do your research|
|Remember you’re a valuable customer|
|Keep the end goal in mind|
|Know about the other lenders|
Personal financial planning with specialist lenders
There is a range of tailored ways to borrow money, if you meet certain requirements for specialist lenders. For example, New Zealanders with physical disabilities can apply for Paraloans. There may also be local mayoral and other benevolent funds willing to lend at less than commercial rates. Local Budget Advice Centres have information about these.
Maybe borrow money against the house
A cheaper way to borrow money might be to extend a home loan to pay for consumer goods, rather than taking out a separate loan, hire purchase or credit card. The only problem is, unless you increase your repayments accordingly, you may end up paying for the goods over a much longer period (and ultimately end up paying more than you otherwise would have). Borrowing money against your home loan, therefore, requires some dedicated personal financial planning. You can do this by increasing mortgage repayments to clear the extra debt within an appropriate term. For example, if you borrow money for a car, and expect to replace the vehicle in five years, then repay that portion of the home loan within 5 years. If you can’t trust yourself to stick to this repayment plan, then you might want to consider a separate loan such as a personal loan that has structured repayments.
Either way, get personal financial advice before you make a decision.