LOANS

Choosing Loans

There are many types of loans available, it does not matter what your need or the amount you require, there are always abundant choices for you to select from.

The loans in Australia are highly diversified and in some cases, it is also an unregulated market, a reason why it is even more important you should understand your loans and terms and conditions before you sign up.

Main Types of Loans in Australia

There are primarily 5 groups of loans in Australia available:

• Credit Card – By far, this will be the most popular loan product
• Home Loans – The biggest loan market in Australia
• Personal Loans – It is a broad term, it includes car loans, travel loans, loans for consumer products, student loans and other personal loans that can give you a quick access to cash
• Commercial Loans – Loans relating to business, this can be for property development, for business growth or for working capital
• Investment Loans – There are different types of investment loans, including loans for investment property, for shares, margin lending is also another type loan widely available in Australia

Interest Rate on Loans

Interest rates on loans vary considerably. The most expensive one being credit card, but if you pay them in full at the end of each month, then you do not need to pay any interest.

Personal loans are also quite expensive compared to other loans; they can even be over 10% interest rate. Some of the loans offer interest free periods but they will go up once the honeymoon period is over, or if you default in repayments.

Car loans can also be expensive, usually several percentage points above the home loan.

This is one of the reasons why home loans with redraw facility are popular, as it provides a competitive, flexible funding option for families.

Commercial Loans

Commercial or business loans as they are called sometimes have higher interest rate as well – these are the loans provided for business purpose and would usually require more stringent process. Unlike home loans, where the property is mortgaged as a security, it is difficult to do that for commercial loans, other assets such as directors’ assets are usually required as security.

Home loans – the most popular loans, in a nutshell, there are 2 types of home loans. Variable Interest Loan and Fixed Interest Loan, in the recent years, reverse mortgage loans have also become popular for those who have paid off their loans.

Home loans is a very competitive market, and there are many providers for home loans – banks, credit unions, foreign banks, mortgage brokers, wholesale loans and many other choices.

Investment Loans

Investment loans are also very popular, initially it was mainly used for investment properties, but many investors are also redrawing their home loans for investment or apply for investment loans for shares or managed funds.

Investment loans come in different forms. For margin lending, which has been popular until recently, provides flexibility to invest in the share investments. Their rates are usually higher interest rate than home loans, but the loan is secured against underlying investment portfolio, but will carry margin call risks.

There are other investment related loans such as contract for differences, which also has a loan component built in it.

Investment loans are popular, as investors can use it to optimize the tax rate, interest incurred from investments loans can be used to offset your income, which in term, can saves on tax.

Where to find loans information?

Loans are available from many channels, you can apply directly with the financial institutions, or you can apply them from Internet, there are always special loan products online, many offer discount interest rates.

Brokers is another choice, as they have access to multiple funding partners, they can often access to wholesale rates which means they can save on interest rate and also waive fees.

The disadvantage is, this means banks will deal through intermediaries rather than with you directly, and if there are problems or if the brokers have financial problems, you have to go through them to solve problems.

You should also look for loans provided by other financial institutions, second tier financial institutions often have competitive products available and will be worthwhile to compare them.

Other Common Fees on Loans

You maybe surprised to see fees once you apply for loans, interest is naturally the biggest fee with loans. But loans in Australia will also have multiple fee structures, they include, loan application fee which can be several hundred dollars, this can be waived sometimes.

Account keeping fees for your loans maybe applicable, early repayment penalties associated with fixed interest loans and others.

There can also be assessment fees sometimes for loans, early repayment fees and statement fees are also common for loans.

The best source for information about loans is still website, especially comparison websites, many financial institutions also have online calculators as applications to determine how much you can borrow and the cost for your loan.

Interest are calculated on the daily basis for loans, so your interest payment will be different each month, and it also depends if you have interest only loan or interest and principal payment loans.