Personal loans: A cheaper option - but Australians still choosing credit cards

With credit card debt becoming an increasingly severe issue amongst young spenders and financial strain taking its toll, it's a surprise that more borrowers don't take advantage of more favourable interest rates available with personal loans. For some, there has always been a stigma attached to taking out a loan, as borrowing via this method seems inseparable from the notion of severe added interest. Credit cards, on the other hand, appear to have an altogether sexier appeal and seemingly provide an easier to obtain (and more conveniently manageable) solution. But could the loan be making a comeback and will credit cards come to be considered as one of the worst offending credit options? Money Buddy investigates.

It's a paradox (and a worrying one) on the modern finance scene, but young people seem to find it increasingly easy to get approved for credit cards despite debt worsening continually for most. What this means, of course, is that there is greater need for responsibility on the part of institutions. Having said that, the individual can never rely on financial institutions who sell products for profit to be their personal finance advisor - that responsibility must fall on the individual. This is why self-management can be helped by responsible spending and, should credit be required, acquisition of the best borrowing solution, not just the first - or best marketed!

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Personal loans are a valuable borrowing option, and there's a wide array of products available across many institutions, and not just the main banks. Check out our product and service finder for some ideas. To get you started though, Citibank have recently issued a brand new personal loan and provided the following press release on the subject. They say:

Sydney, 28 May 2008: One-third of Australians are still choosing to use their credit cards for large purchases, even though a staggering 55 per cent believe personal loans are a cheaper option, a Citibank survey* has found

The national survey of 1000 people revealed that given the option to pay for large purchases of $3000 or over, 38 per cent of respondents chose personal savings, 33 per cent selected credit cards and just 10 per cent opted for a personal bank loan, despite lower interest rates.

The research coincides with the launch of Citibank's new personal loan, which gives applicants a decision within just one minute, the ability to accept the loan contract online and if successful, receive their cash within 48 hours.

Jacqueline Nissen, Head of Consumer Lending, Citibank said, "Our research highlighted the two most important factors when people are looking to take out credit are rate and the ease of the application process".

"More and more customers are choosing to take out a personal loan because of the savings they can make but people still rely on their credit card because it's quick and convenient," Nissen said.

Citibank is the first Australian bank to allow customers to enter into a loan contract online, both securely and easily, meaning customers will know within minutes, rather than days, if their loan application has been successful.

"Citibank's one minute personal loan debunks the public's perception of lengthy application processes and excessive paper work and importantly, we haven't compromised on lending security," Nissen said.

When asked the most important factors for taking out a personal loan; interest rates were number one, ease of application process second, followed by speed of decision and cash. Brand was ranked as the least important factor when selecting a personal loan.

Other key findings from the research included:

• Preference to use credit cards to make a purchase over $3000 was highest in NSW 35%, VIC 34% and QLD 29%
• Preference to take out a personal loan was highest in TAS 25%, WA 14%, SA/NT 12% - QLD was the lowest 7%
• Preference to pay with personal savings was highest in WA 47% and lowest in NSW and VIC both 36%
• 20% of people think a credit card is cheaper than a personal loan when making a large purchase
• 96% of people stated speed of application process was important



"At Citibank we've tried to remove the barriers to personal loans thanks to a competitive rate, instant application and cash in your hand within 48 hours," Nissen said.

Given the fact that Citibank provides personal loans for a price and profit, and so therefore are bound to find new ways to push their product, it's easy to be cynical, however they are still offering a very valid and refreshing argument. Whilst Citibank's personal loan is by no means the only option, it's certainly an alternative to credit cards with huge rates and short interest-free periods. If you're seeking finance for a particular function, be it a new car or an unforeseen credit shortage, personal loans should be on your shortlist of options.




*The Citibank Personal Loan survey was conducted by Taylor Nelson Sofres in April/May 2008. The national survey involved 1000 people.