Big expenses have a way of showing up when you least expect them.
For people living and working across Western Sydney, that might mean paying for a course, doing some work around the house, or covering another major expense. Personal loans are designed for a range of expenses like these.
ASIC’s MoneySmart defines personal loans as money you borrow for a personal purpose and repay with interest over an agreed period. There are several lenders offering personal loans in Australia, including Handy Finance, which offers loans from $2,001 to $75,000 for most personal expenses, or up to $100,000 for home improvements and passenger motor vehicles.
The type of expense you can cover will depend on the loan, but there are a few common uses worth knowing about:
Home improvements and repairs
A personal loan can be used for some of the bigger jobs around the house, particularly when the cost is more than you want to cover from your everyday cash flow. That could mean:
- Updating a bathroom or kitchen
- Replacing flooring or other fixtures
- Making repairs around the house
- Paying for electrical, plumbing or other trades
- Covering other home improvement work
The important detail is that not every loan can be used for every purpose. Some personal loans have restrictions on how the money can be spent, so it’s worth checking the terms before applying.
Education and training
A course or qualification can be a significant expense, particularly when you’re also covering the usual costs of work and everyday life.
Depending on the lender and loan, borrowing may be used towards education, training or other personal expenses. The key here is checking that the loan allows the intended use, and looking at the total cost of borrowing before committing.
For people working in or around Bradfield and the wider Western Sydney area, professional development courses could be one of the expenses that come with taking the next step in your career.
Major purchases
Sometimes the expense is simply something you need to buy that costs more than you’ve got tucked away in savings.
That could mean a new fridge, washing machine, furniture or another large household purchase. MoneySmart notes that personal loans can be used for big-ticket purchases, although some smaller essential expenses may be better suited to other forms of assistance.
It can also be worth checking whether the retailer offers its own finance arrangement and comparing the total cost, including interest and fees, before deciding how to pay for the purchase.
Cars and other vehicles
A personal loan can also be used to help pay for a vehicle, although the type of loan available and the amount you can borrow will depend on the lender and your circumstances.
This is another area where checking the loan’s permitted use matters. Some lenders offer dedicated car loans with different terms from their general personal loans.
If you’re looking at a vehicle, compare the total cost of financing as well as the purchase price. A repayment that looks manageable each month can add up to a very different figure over several years.
Going on holiday
You may also use a personal loan for discretionary expenses, such as a holiday. MoneySmart lists holidays as a common example of what a personal loan can fund, although that doesn’t necessarily mean borrowing is the right choice for every trip.
Unlike an asset that you continue to use after the loan is repaid, a holiday is an expense that ends once the trip is over, while the repayments can continue. If you’re considering borrowing for something like this, looking at the full repayment cost can help put the decision into perspective.
What to check before taking out a loan
Knowing what a personal loan can cover is only the starting point. Before applying, there are a few practical details worth checking:
1. Does the loan allow the intended use?
Some loans are designed for specific purposes, so check the conditions before applying.
2. How much will it cost altogether?
Look beyond the advertised interest rate. Fees, the loan term and the repayment structure can all affect the total amount you repay.
3. How long will you be paying it off?
While a longer loan term can reduce the size of each regular repayment, it can also mean paying interest for longer.
4. Can you manage the repayments if things change?
ASIC’s responsible lending guidance requires credit providers to assess whether a proposed credit contract is unsuitable based on the borrower’s circumstances, requirements and objectives.
So, it’s worth considering whether you’d still be able to manage the repayments if your income or expenses changed during the loan term.
5. Are you comparing the total cost?
MoneySmart recommends comparing loans before shopping for the item you want to buy. Looking at the interest rate, fees, loan term and features together can give you a more useful basis for comparison.
ASIC’s guidance on loans and credit cards also provides more information for consumers considering borrowing and using credit.
So, what can a personal loan cover?
A personal loan can help cover a range of larger expenses, from home improvements and education to big-ticket purchases, major holidays and vehicles. The main takeaway? Different loans come with different terms, so it’s worth checking what the loan can be used for before applying.
Once you know the loan can cover the expense you have in mind, take a look at the bigger picture. Consider how much you need to borrow, what the repayments will look like, and how much you’ll pay back over the life of the loan.
Planning a big expense can be easier when you understand the total cost and how the repayments will fit into your budget.
