Instalment Loan Options in Australia

Instalment loans in Australia are a type of loan where the borrower receives a lump sum of money and repays the loan over a fixed period of time in regular instalments.

Instalment loans can be used for a variety of purposes, such as buying a car, home renovations, consolidating debt, or covering unexpected expenses. The loan terms and interest rates will vary depending on the lender, the borrower’s credit history, income, and the loan amount.

When applying for an instalment loan in Australia, borrowers will typically need to provide proof of income, employment status, and identification. The lender will also likely perform a credit check to assess the borrower’s creditworthiness.

Borrowers should carefully read and understand the terms of the loan before accepting it. This includes the interest rate, fees, repayment schedule, and any penalties for missed or late payments.

As with any financial decision, it’s recommended that borrowers compare options from different lenders and consider their financial situation before committing to an instalment loan.

What is the difference between an instalment loan and a payday loan?

Instalment loans and payday loans are two different types of loans that operate differently in terms of the amount borrowed, repayment terms, and interest rates.

Instalment Loans:

Repaid over a set period of time in regular instalments
The borrower receives a lump sum of money and repays the loan in equal payments, usually within months or years
Interest rates are generally lower
Longer repayment periods
The maximum loan amount that can be borrowed are usually higher

Payday Loans:

Short-term loan typically repaid in full
The borrower receives a small amount of money which should be repaid within a few weeks
Payday loans usually have higher interest rates
As the name suggest, the amount borrowed will be repaid during the borrower’s next payday
Designed to cover small, unexpected expenses, since maximum loan amount is smaller compared to instalment loans

In Australia, payday loans are subject to specific regulations and interest rate caps to protect consumers from excessive fees and interest rates. It’s important for borrowers to carefully consider their financial situation and repayment ability before taking out any type of loan, including payday loans and instalment loans.

Types of Instalment Loans

Below are some types of instalment loans.

Personal Loans

A personal loan is a type of loan that allows you to borrow money for a specific purpose, such as a holiday, car, or home renovation. The loan is repaid over a fixed period, usually between one and seven years, with interest.

Personal loans can be either unsecured or secured. Unsecured personal loans do not require collateral, meaning that the loan is not backed by any asset. Secured personal loans, on the other hand, require collateral, such as a car or property, to secure the loan.

Personal loans can also have either fixed or variable interest rates. Fixed interest rates remain the same for the duration of the loan term, while variable rates can fluctuate depending on market conditions.

When applying for a personal loan, the lender will consider various factors, including your credit history, income, and debt-to-income ratio, to determine your eligibility and interest rate. It’s important to compare different lenders and loan options to find the best personal loan for your needs and financial situation.

No-Credit Check Loans

No credit check loans are loans where the lender does not conduct a credit check on the borrower. However, these loans may have higher interest rates than regular loans. Lenders may carry out a ‘soft’ credit check to verify the borrower’s identity and payment history. This helps to ensure that the borrower has a steady source of income for making timely repayments.

The repayment schedule for no credit check loans can vary depending on the lender and the terms of the loan. Some lenders may require weekly or bi-weekly repayments, while others may offer monthly repayments. The borrower will typically have a fixed period of time in which to repay the loan, and the repayment amount will include both the principal amount borrowed and any interest or fees associated with the loan.

Carefully consider the terms and interest rates of no-credit-check loans before applying, as they may be more expensive than other loan options. It’s also important to ensure that the borrower can make timely repayments, as missing payments on a loan can result in additional fees and negatively impact the borrower’s credit score.

Mortgages

A mortgage is a type of loan where real estate is used as collateral. Mortgages are typically used to finance the purchase of a home or investment property, allowing borrowers to spread out the cost of the property over a period of time.

The borrower makes regular repayments to the lender over a set period, usually ranging from 10 to 30 years. These repayments consist of both principal (the amount borrowed) and interest (the cost of borrowing the money).

In some cases, a borrower may choose to make interest-only repayments on their mortgage loan for a period of time, usually from 1 to 5 years, before starting to make principal and interest repayments. This option is more commonly used by borrowers with investment loans, as it allows them to maximise their cash flow during the interest-only period.

Consider the terms and interest rates of a mortgage loan before applying for one, as it is a long-term financial commitment. It’s also important to ensure that you can make timely repayments, as missing monthly payments can result in additional fees and potential foreclosure of the property.

Auto Loans

A car loan is a type of personal loan that is used to finance the purchase of a new or used car. The borrower takes out a loan for the purchase price of the car, plus any applicable fees or taxes, and repays the loan and interest over a fixed term, typically ranging from one to seven years.

Car loans can be secured or unsecured, with secured loans requiring the car to be used as collateral for the loan. The interest rates on auto loans can vary depending on the lender and the borrower’s credit history, but they are generally lower than the interest rates on credit cards or other unsecured loans.

When considering to apply for a car loan, make sure you review the terms and interest rates of the loan, as well as the repayment schedule and any potential fees. It’s also important to ensure that the borrower can make timely repayments, as missing monthly payments can result in additional fees and potential repossession of the car.

Student Loans

Most student loans in Australia are provided through the government-administered Higher Education Loan Program (HELP) to help eligible students with the cost of higher education. This program offers interest-free loans to eligible students to cover tuition fees and other expenses associated with their studies, such as textbooks and equipment.

Some online lenders in Australia also offer personal loans that can be used to cover education-related expenses, such as tuition fees, textbooks, and living expenses. These loans may be an option for students who do not qualify for government-provided student loans or who need additional funding to cover the cost of their studies.

Before taking out any student loan, carefully consider the terms and conditions of the loan, including the interest rate, fees, and repayment terms. Students should also explore other options for funding their education, such as scholarships, grants, and part-time work before taking on any debt.

Is getting an instalment loan a good idea?

Pros

There are several potential advantages to getting an instalment loan, including:

Predictable payments: With an instalment loan, you typically make equal payments over a set period of time, which can make budgeting and planning easier.

Flexibility: Instalment loans can be used for a variety of purposes, from consolidating debt to paying for unexpected expenses.

Access to funds: If you need money quickly, instalment loans can provide a way to access cash without having to wait for a lengthy approval process.

Credit-building potential: Making on-time payments on an instalment loan can help improve your credit score over time.

Lower interest rates: Instalment loans may offer lower interest rates than other common types of credit, such as credit cards or payday loans.

Cons

Fees and penalties: Some instalment loans may come with additional fees, such as origination fees or prepayment penalties, which can add to the cost of borrowing.

Risk of default: If you fail to make your payments on time, you could face late fees, penalties, and even default, which could harm your credit score and make it more difficult to borrow in the future.

Impact on credit score: While making on-time payments on an instalment loan can help improve your credit score, missed or late payments can have the opposite effect, which can potentially harm your credit and make it more difficult to obtain credit in the future.
Potential for overborrowing: With instalment loans, it can be tempting to borrow more than you need, which can lead to debt problems and financial stress down the line.

Where can I get an instalment loan?

Several online lenders in Australia offer instalment loans. Here are a few options:2

MoneyMe: MoneyMe offers personal loans of up to $50,000 with repayment terms of 6 months to 5 years.

Nimble: Nimble offers personal loans of up to $25,000 with repayment terms of 6 months to 4 years.

Wisr: Wisr’s loans range from $5,000 to $50,000, with repayment terms of 3 to 7 years.

Cash Train: Cash Train offers small loans of up to $2,000 with repayment terms of 10 weeks to 6 months.

Wallet Wizard: Wallet Wizard offers personal loans of up to $5,000 with repayment terms of up to 2 years.

Aside from the lender options above, Friendly Finance also offers a quick online loan application process which can help lessen the amount of time you will spend filling up and submitting separate forms for different lenders.

Instalment Loan Alternatives

If you’re looking for alternatives to an instalment loan, here are some options:

Credit cards: Credit cards can provide flexibility and convenience, allowing you to make purchases and repay the balance over time. However, it’s important to use credit cards responsibly and avoid carrying a balance that accrues high-interest charges.

Personal overdrafts: Personal overdrafts allow you to borrow up to a certain amount from your bank account when you don’t have enough funds to cover expenses. This can be a flexible option, but interest rates can be high so make sure to repay the overdraft promptly.

Peer-to-peer lending: Peer-to-peer lending platforms connect borrowers directly with individual investors who are willing to lend money. Interest rates on P2P loans can be lower than those on traditional loans, but there may be fees associated with the platform.

Payday loans: While we don’t recommend payday loans as a first choice, it is an option to borrow small amounts of money quickly with fast approval processes. Payday loans are usually repaid in a lump sum on the borrower’s next payday and can come with very high fees and interest rates.
Family and friends: If you have a good relationship with family or friends who are willing to lend you money, this can be an option to consider. However, it’s important to formalise the agreement in writing to avoid any misunderstandings or strain on the relationship.

It’s important to carefully consider all of your options and choose the one that best fits your financial situation and needs. Make sure to read the terms and conditions carefully and only borrow what you can afford to repay.

TL;DR

Whether instalment loans are a good idea depends on a variety of factors, including your financial situation and the specific loan terms. If you have a steady income and can afford the payments, an instalment loan can be a good option for financing larger expenses that you cannot pay for upfront. Additionally, making on-time payments on an instalment loan can help build your credit score, which can make it easier to qualify for loans and credit in the future.

However, instalment loans can also come with higher interest rates and fees, and failing to make payments on time can negatively impact your credit score and result in additional fees and charges. Before taking out any loan, it’s important to carefully consider the loan terms, compare offers from multiple lenders, and ensure that the loan fits within your overall financial plan.