Finding the right loan type for your needs

Whether you’re looking for a loan to consolidate debt or pay for a short holiday, we've created this quick and simple guide to Australia's wide range of loan types to help you find the most suitable option for your needs.

Each financial situation will have a loan type designed for it and choosing the right time will not only make your loan more affordable but will ensure you can maintain the repayments and keep your credit score and budget in the green.

Which loan type is right for you?

The terms and nature of each loan type is to the benefit of the consumer and lender. It's important that you understand the difference between different loan types to ensure that you know exactly what type of loan you need to apply for.

As the requirements and features of each loan type are different, you will need to know what is expected of you when applying for the loan of your choice. If you do not, you could easily have your loan application rejected due to preventable reasons.

Your quick guide to the different loan types available in Australia

Personal loans

Personal loans are exactly that, for personal use. Whether it is a lavish item, a trip to your favourite holiday destination or your dream wedding, you can spend the money on whatsoever you wish.

A certain amount of money is loaned over a certain period of time, which is dependent on the lender. Personal loans are interest-bearing and the amount of interest. Lenders offer various interest rates and it is your job to make sure you get the very best deal.

A personal loan can either be secured or unsecured

More often than not, personal loans are unsecured and available at almost every lender. However, a secured personal loan might allow you are to be approved for more than you would be, should you loan be an unsecured loan. It’s good to know you have options though.

Understanding personal loans is fairly simple as they are easily obtained and you should be able to get approval and payout within the same day at a reputable lender.

Australia's current leading personal loans:

• One of Australia's leading personal loan providers is peer-to-peer lender Harmoney with rates from as low as 6.99% and loans up to $70,000 with no early repayment fees
• Another peer-to-peer lender with low-rate personal loans is Rate Setter with rates from 6.9%
• With rates from 7.95% and loans from $5,000 to $50,000, you can enjoy a competitive loan with no early repayment penalties from Wisr
• Now Finance offers Australians loans between $5,000 and $40,000 with interest rates ranging from 8.95% to 16.95%
• ING offers personal loans from $5,000 to $30,000 with interest rates starting from 8.99%

Debt consolidation loan

This is a great option for individuals who wish to become debt-free. However, don’t be fooled, as there is a certain level of discipline needed but the goal is very obtainable.

A debt consolidation loan is a loan designed to combine all your existing payments to lenders into one, single, smaller repayment. The repayment will be payable to your consolidation loan lender. Many people opt for a debt consolidation loan when they are looking at saving on interest. Consolidating high-interest loans can save you a good sum of money in the long run.

About the discipline principle, debt consolidation often gives you a higher disposable income, which could lead to individuals incurring more debt. You should be disciplined enough not to do the above so that you can reap the benefits of being debt-free and financially secure.

Mortgage loans

Mortgage loans are loans you apply for should you wish to purchase a property. It is a secured loan in terms of the property standing as an asset. The lender can therefore claim the property should you default on your repayment.

A mortgage loan is often a large amount loaned and it is interest-bearing. These loans are normally paid over a period of 15 to 30 years. Due to the loan amount, the requirements and procedures are stricter than will short-term or personal loans, for example.

Business loans

A business loan is exactly what the term suggests, it is a loan designed for business purposes. The set of requirements and procedures are very different to any other loan form. It is also a loan form, which is offered by most lenders. In fact, it is possible to find a business loan at almost any online loan lender.

Short-term loans

Generally, short-term loans are repaid within three years. Online lenders will often have approval within minutes of submission of your application. These loans can vary in type but generally, all have the same features.

The amount that can be loaned is far less when compared to mortgages or long-term loans. Personal loans or payday loans are examples of short-term loans.

Flexible loans are another popular form of short-term loan, which is often a credit-based loan with repayment terms of about 12 months. Short-term loans also offer higher interest rates than long-term loans as the repayment period is shorter.

Your current credit score will also affect the interest rate a lender offers. Shopping around will allow you to find the best interest rate possible.

Loans for people with bad credit

If you have a bad credit record, there are bad credit options available to you. If you are applying for a loan with bad credit, you will need to look at lenders such as credit unions, peer-to-peer lenders, home equity loans or perhaps friends and family members.

Payday loans

Payday loans are extremely convenient and easily obtainable. Depending on your lender, these loans are usually repaid between a few days to one year. However, most of the time the loan and interest charged is to be paid with your next salary.

This is a fantastic option for those who find themselves in an unexpected financial predicament. The loan is usually paid by direct debit from your bank account. Alternatively, the deduction is directly from your pay. Usually, the loan will be deducted on the day you are paid.

There are many online payday lenders that offer same-day service, so whether you have unexpected medical bills or repairs to pay for, a payday loan is your financial solution.