Money expert Nicole Pedersen-McKinnon answers your questions.
My family is departing soon for a family holiday to my wife's country of Peru for five weeks and I would like to apply for a personal loan of $3000, as my wife has relatives in Peru and I'd like to help make their life a little more comfortable. What is your expert advice on what bank, credit union or other institution is best to apply for a personal loan of $3000? Perhaps Money ???has written an article on this?
Kevin, you are clearly a generous man. I do worry, though, that if you don't have $3000 in cash to give to your wife's family, you can't afford a heart quite so big.
Let's assume, on the off-chance that things go wrong in your own financial life, your own family has a Holy Shit fund of three months' salary ??? but no more ready cash than that.
The thing is, borrow for this gift and you'll have to pay back the money and interest. If you took the $3000 loan over three years, in total it would cost you nearly $4000 (at the average 13 per cent).
Of course, repayments will squeeze your monthly finances too. You won't just have to find $83.33 extra each month (that's $3000 divided by 36 months), but $111 with loan interest.
Might I suggest you instead do the former: give the money as you earn it ??? so it costs you not a cent more?
If a lump sum is necessary in your wife's family's circumstances, however, get the cheapest loan you can (bearing in mind unsecured loans always carry an interest rate premium because there's no asset that can be seized if you default).
Building societies and credit unions (or those that are newly designated as banks) have traditionally offered the best and Bank Australia, which was formerly bankmecu and before that the Members and Education Credit Union, is the lowest priced (from 11.89 per cent variable). Finder.com.au says the next best are St George/Bank of Melbourne (from 12.99 per cent) and Latitude Financial (from 13.99 per cent).
This compares with rates of 14 to 16 per cent variable at the big four banks.
Your other option might be getting the loan from a peer to peer lender, an online platform that matches investors with borrowers, like SocietyOne or RateSetter (or one of about half a dozen others operating in Australia). The interest rate will depend on your credit rating and, if it's good, you may be able to access the money as cheaply as 7.5 per cent.
Your Peruvian family is lucky to have you, Kevin. Enjoy the reunion!
Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at firstname.lastname@example.org.