What you need to know about $5,000 personal loans
If you’re looking to borrow $5,000, a personal loan might be a good product for your circumstances. Personal loans generally offer lower interest rates and longer repayment periods than credit cards, and tend to charge fewer fees than payday loans.
What are the repayments on a $5,000 personal loan?
Repayments on a $5,000 personal loan will depend on factors such as the interest rate, loan term and fees charged by the lender.
You can use Canstar’s personal loan calculator to get an estimate of how the repayments might look on a $5,000 loan.
As an example, here’s how monthly repayments on a hypothetical $5,000 loan with a three year loan term might look, depending on the interest rate:
At 5% p.a.:
- Monthly repayment size: $150
- Total interest paid: $395
At 10% p.a.:
- Monthly repayment size: $161
- Total interest paid: $808
At 15% p.a.:
- Monthly repayment size: $173
- Total interest paid: $1,240
Keep in mind that an online calculator can only provide an estimate of your repayments. Still, it can help you decide whether a $5,000 loan fits comfortably within your budget.
What factors affect the cost of my personal loan?
Several factors affect the overall cost of a loan, including:
The interest rate
Even a small increase in the interest rate can raise your regular repayments and significantly increase the total amount of interest you pay over the life of the loan.
Your rate is typically determined by factors such as your credit score, income, employment, and existing debts. Lenders often view borrowers with higher credit scores as less risky and offer them their lowest interest rates.
The length of the term
Changing the loan term has a direct impact on your repayments. A longer term means lower repayments because the loan is spread over more instalments. However, you also pay interest for a longer period, which can lead to more interest overall.
A shorter term means higher monthly repayments, but you repay the loan faster and pay less interest overall.
For example, on a $5,000 loan at 5.95% p.a., shortening the term from five years to three years can increase your monthly repayments by around $55. But it also reduces your total interest bill by around $321.
Your preferred repayment frequency
Making repayments more often can reduce your total interest. Interest is usually calculated daily on your loan balance. When you repay weekly or fortnightly, you reduce the principal more often, so interest is charged on a smaller amount for longer periods.
While more frequent repayments can help save on interest, they can also increase the risk of missed payments if they don’t match your cash inflow. Some borrowers align their repayments with their pay cycle to simplify budgeting.
Additional fees and charges
Like most credit products, personal loans can come with fees, like:
- An application fee
- An ongoing service charge, often paid monthly
- Late payment fees
- Fees for making additional repayments or closing the loan early
Keep in mind that not all lenders charge all fees. It’s always worth checking a loan’s terms and conditions carefully to understand its total cost. You can also look at the loan’s comparison rate, which combines the interest rate with most upfront and ongoing fees, to get a better idea of the loan’s overall cost.
Am I eligible for a $5,000 personal loan?
To apply for a personal loan, you’ll usually need to:
- Be 18 or over
- Be an Australian citizen or permanent resident
- Have a stable income
- Have an acceptable credit score
Besides these basic requirements, check with your chosen lender to see if it has any extra eligibility rules. For example, some lenders might require a minimum income or ask that you have worked at your current job for at least three or six months. Others may only offer certain loan products to people with excellent credit scores.
Looking at these requirements before you apply can help reduce your chances of rejection.
How to apply for a $5,000 personal loan
Once you’ve found your preferred lender, you can usually fill out an application form on its website. Some lenders also allow you to apply in person at a branch.
As part of the process, you’ll need to provide documents and financial details, such as:
- Proof of identity, like your passport or Australian driver’s licence
- Recent payslips or bank statements that show your income
- Details about your employment
- Information about any assets you own and debts you owe
- Information about your regular expenses and any dependants you support
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