The lower the interest rate and the lower the fees, the cheaper the loan will be. Don't just focus on the monthly payments - always look at the repayment period and total amount you will repay as well.
The total cost of a Westpac $10,000 consolidation loan repaid over five years at an interest rate of 17.35 percent would be $15,360. This included a $250 upfront "establishment fee". The monthly payments were $256. Repaid over three years, at $367 a month, the total cost would be a much lower $13,212.
You should go to several lenders for quotes - including your bank or mortgage lender.
Use our checklist to assess what's being offered:
- rate of interest
- fees and charges to set up the loan (including administration fees to document any asset you're putting up as security)
- early repayment charges on loans you want to get rid of (it's usually better to leave finance with interest-free periods in place and refinance at the end of the interest-free period)
- repayment insurance (if required)
- whether there are broker fees or commissions of any kind
- whether fees and insurance are added to the loan and charged interest
- the length of the loan
- monthly amount you'll pay
- total cost of interest over the term of the loan
- total amount repaid compared with the amount borrowed
- whether there are repayment penalties on the new loan.
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