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Loans
The first thing to look at when deciding on a loan is whether a fixed rate of interest or a variable rate of interest applies. Fixed interest rates will remain the same for a set period of time. This should be stipulated in the credit contract. Variable interest rates will move up or down depending on the market and usually only apply to home loans.
Fixed interest rate loans will give you greater control over your finances because the repayment amount will remain the same for the fixed interest period. However, generally with fixed interest rate loans you will not be allowed to make more than the agreed repayments (pay off the loan quicker), without incurring a penalty. Check with the lender on any conditions that apply.
You can also choose to split the type of interest rate that applies to certain types of loan. This can be done in two ways:
- when a fixed interest rate applies to the loan for a particular period of time only and then it can be changed to a variable interest rate;
- where part of the amount borrowed attracts a fixed interest rate and the remainder a variable interest rate.
Consolidation loans
Some lenders will offer consolidation loans. These loans allow you to group together your smaller loans. The advantage of a consolidation loan is that you only have to make one repayment per month. The disadvantage is that you will usually be paying the loan off for a longer period of time and paying more in interest.
Loan Trouble – a case study
Sean had an accident and couldn't work for 2 months. This meant he missed two repayments on his personal loan.
A couple of months later he was back at work and was paying his monthly loan repayments but he found it hard to catch up with the two repayments he had missed. Sean telephoned the lender to sort something out but they told him that his file had been sent to their debt collection area and insisted that the overdue repayments be made. Sean contacted Consumer Affairs for help. Consumer Affairs successfully negotiated with the lender for Sean to pay off an extra $20 per week on top of his usual repayments until the two repayments were cleared.
Take the bus – an important lesson learned
Cathy and Jim went to a dealer and bought a used car for $13,990. They got a trade in of $5,000 and needed a loan for the remaining $8,990. The seller organised the finance for them and the car was the security for the loan. Cathy and Jim took the car and moved to Qld but Jim could not find a job there. They had made only one of their repayments.
A year later, Cathy and Jim hadn't made any more repayments. The lender repossessed and sold the car to cover the debt. It was sold for $10,000 but this was not enough to pay the loan out after enforcement expenses and interest were added. This meant that Cathy and Jim no longer had a car and still owed the lender $4,600.
