The short version
- Most lenders lend $10,000, so compare the total cost, not just the rate.
- A shorter term means higher repayments but less interest.
- On a smaller loan, the setup fee can matter as much as the rate.
What a $10,000 loan costs
Your repayments depend on the rate you're offered and how long you take to repay. These examples leave out fees, which add to the cost:
- At 8% a year: $870 a month over 1 year, $452 a month over 2 years, $313 a month over 3 years.
- At 12% a year: $888 a month over 1 year, $471 a month over 2 years, $332 a month over 3 years.
- At 18% a year: $917 a month over 1 year, $499 a month over 2 years, $362 a month over 3 years.
Choosing the term
A longer term lowers each repayment but means paying interest for longer, so the loan costs more in total. Pick the shortest term whose repayments you can comfortably afford, and check whether you can pay extra or pay off early without a fee.
Fees matter more on smaller loans
On a $10,000 loan, an establishment fee of a few hundred dollars is a big share of what you borrow, and a monthly fee adds up over the term. The comparison rate captures these, which is why it's the better number to compare.
Pros
- Pay a $10,000 cost now and spread it out in set repayments.
- Usually cheaper than a credit card for the same amount.
- A set end date, so the debt is gone by the end of the term.
Cons
- Interest and fees add to what you pay.
- A new application adds an enquiry to your credit report.
- Fees weigh more on a smaller loan, so a low rate with a big fee can still cost more.
Alternatives
- A low rate or interest free credit card. For a smaller amount you can repay within a year or so, a card's interest free period can cost less. Pay it off before the period ends, as the rate afterwards is usually higher.
- Saving first. If the cost can wait a few months, saving for it costs nothing in interest, and a high interest savings account pays you instead.
- A No Interest Loan (NILS). If you're on a lower income, community lenders offer loans of up to $2,000 for essentials, with no interest or fees.
What you'll need to apply
Most lenders ask for the same things, and having them ready speeds up approval.
- Proof of identity, such as a driver's licence, passport or Medicare card.
- Proof of income, usually your last two payslips, or tax returns and financial statements if you're self-employed.
- Details of what you spend each month and what you already owe, including credit card limits.
- Your address history and, for a secured loan, details of the asset you're offering as security.