How do personal loans work?
Prior to today's technology, people had very few choices when it came to borrowing money, since consumer lending was generally only available through banks and building societies or heading down to the local payday loan shop. Anyone could opt to use credit cards to cover unexpected or necessary expenses, but of course, these came with high interest rates and can take forever to pay off. The other option available to most people was to apply for a bank loan, which was generally only available if you had a good credit rating or could find a guarantor.
But with ever improving technology, we've seen the rise of the Fintech industry and the emergence of more sophisticated non-bank lenders offering personal loans.
Using technological innovations for underwriting data and algorithms for predicting risks, these lenders were able to create an industry that helps many people with their financial needs. Today, non-bank lenders offer consumers fast and easy personal loans that don’t come with all of the red tape associated with the big banks. But before you jump into it and apply for a personal loan, here’s everything you need to know about how it all works.
Secured or unsecured
Personal loans come in many forms, but specifically, they can be secured or unsecured. A secured loan is backed by an asset such as a car or a house while an unsecured loan is not. If you have to offer collateral in the form of assets (a secured loan), this gives the lender some assurance that they will be able to recover their capital if you’re unable to pay back the money you owe them.
This is not the case with an unsecured loan, which is the most common type of personal loan. Small personal loans under $2,000 will be unsecured. With an unsecured loan, you don’t have to offer any collateral to the lender.
But that doesn’t mean that there won’t be any implications if you default on your repayments. If you don’t pay back the money you owe to a lender, they may be able to take legal action against you so they can collect your outstanding debt along with any fees, charges and/or outstanding interest. This can also compromise your credit score, making it more difficult for you to get a loan in the future.
What are personal loans used for?
The most common usage of an unsecured personal loan is to finance one-off purchases such as car repairs, a holiday, home renovations, a wedding or a family emergency - or to pay off other small debts.
How do you apply for a personal loan?
To put it into practice, you contact a lender and apply for a personal loan if you want to borrow money. One awesome thing about the technologies used in this process is that there’s no need to physically visit the lender. The majority of lenders offer an online application service, saving you a lot of time and other hassles from going into an actual location (and with the Covid-19 pandemic, staying home just makes good sense).
Applying for your loan online means that once you’ve provided the required information and submitted it, the lender will assess your application and decide quickly whether to approve your application or not.
When applying for a personal loan, you will get a fixed amount of money once the application is approved. Your loan will be issued to you in a lump sum with the cash deposited into your bank account. The terms of the loan usually require you to pay back the money you borrowed over a fixed period, and at a fixed monthly fee or interest rate.
The period you have to pay back your loan (the loan term) varies from one lender to another and depends on the amount you borrow - terms can range from 2-24 months. Once you’ve paid off the full amount, your loan will be closed, but you can quickly apply for a new loan if you want to borrow money again.
Here at Safe Financial, we’re personal loan experts and we offer two types:
- Small Amount Credit Contract ('SACC') for loans from $1,000 to $2,000
- Medium Amount Credit Contract ('MACC') for loans from $2,001 to $5,000
These loans are regulated under the National Consumer Credit Protection Act (2009). To make things nice and simple, we don't charge any interest on our small personal loans up to $2,000 - instead we only charge an establishment fee and a set monthly fee. And, there are no exit fees if you wish to repay early - so you can save on costs!
To apply, you need to be at least 18 years old, a permanent Australian resident and have a bank account and phone in your name, a driver’s licence, or 100 points of ID. Even if your credit history isn’t sparkling clean, you can still apply unless you have multiple unpaid loan defaults, or you are currently in a Part 9 Debt Agreement.
Apply now!
If you're in need of some quick cash for any reason, just check out our personal loans from $1,000 to find out how quick and easy it is to get your hands on some extra funds. Once a loan is approved, we can usually deposit the cash into your bank account within a few hours!