What to Check Before You Take Out a Personal Loan

TL;DR

• The comparison rate, not the advertised interest rate, shows a loan's true cost, since it combines interest with most fees into a single percentage figure.
• A low weekly repayment can still add up to a high total cost if the loan term is long or the fees are stacked, so check the full amount repayable, not just the weekly figure.
• Missed payment costs vary by lender. Some charge late fees on top of interest. Beforepay doesn't charge late fees.
• A short-term shortfall, like a bill or car repair, may be more suited to a small short-term product, while a planned expense, like debt consolidation, may suit a longer-term loan with fixed monthly repayments.
• This guide walks through what to check, red flags to avoid, and two worked examples showing what a shortfall can actually cost depending on how you cover it.

A quick glossary before you start

Comparison rate. A single percentage figure that combines a loan's interest rate with most fees, giving you a more accurate way to compare the true cost between lenders. Two loans can advertise the same interest rate and still cost very differently once fees are factored in.

Establishment or setup fee. A one-off fee charged when your loan is approved, on top of any ongoing interest.

Secured versus unsecured. A secured loan is backed by an asset, like a car, which the lender can claim if you don't repay. An unsecured loan isn't backed by an asset, but usually carries a higher interest rate as a result.

Credit check. Lenders assess your ability to repay in different ways. Some rely on a traditional credit check through a credit bureau. Others, including Beforepay, don't run a traditional credit check but do assess your income and expenses directly.

Term. How long you have to repay the loan in full. A shorter term usually means higher individual repayments but less paid overall, a longer term spreads repayments out but can increase the total cost.

What to look out for before you borrow

The total cost, not just the weekly repayment. A low weekly figure can hide a high total cost if the term is long or the fees are stacked. Always ask for, or calculate, the full amount you'll repay by the end of the term.

The comparison rate, not just the headline rate. This is the number that reflects what you'll actually pay once fees are included.

What happens if you miss a payment. Some products charge late fees on top of interest. Others, like Beforepay's Pay Advance and Personal Loan, don't charge late fees at all. This can matter more than the headline rate if your income is irregular.

Whether the amount fits your budget, not just your eligibility. Being approved for an amount doesn't mean it's the right amount to take on. Work backward from what you can comfortably repay each pay cycle. Our budgeting and insights tools can help with this before you apply.

Whether your credit is assessed traditionally or not. If you're conscious of your credit file, it's worth knowing whether a lender runs a traditional credit check or assesses eligibility another way.

Red flags to watch for with any lender

• Guaranteed approval promises. No responsible lender can guarantee approval before assessing your circumstances. Treat this language as a warning sign, not a selling point.
  
• Pressure to borrow more than you asked for. A lender pushing you toward a higher amount than you need isn't acting in your interest.
  
• No visible hardship policy. Every credit provider should have a clear process for what happens if your circumstances change and you can't repay on time.
  
• Vague or hidden fee structures. If it's hard to find a straight answer on total fees, that's worth treating as a red flag in itself.
  

Weighing up your options

The right way to borrow usually depends on the size and shape of the problem you're solving, not just the interest rate on offer. Our guide to Pay Advance vs Personal Loan, how do you know which one to choose, covers this in more depth.

A short-term shortfall before payday, like a car repair, a bill, or an unexpected expense, is usually better matched to a smaller, short-term product with a fixed fee and a repayment timed to your next pay cycle. This is the shape a Pay Advance is built for, up to $2,000, repaid over a maximum of 62 days, aligned to your pay cycle, subject to eligibility. If you're weighing up how to cover a gap like this, 5 practical ways to raise money for short-term expenses is worth a read.

A larger, planned expense, like a bigger repair, a medical cost, or consolidating existing debt, usually suits a longer-term, larger product with a fixed monthly repayment. This is the shape Beforepay's Personal Loan is built for, from $2,001 up to $5,000, repaid over a term of up to 12 months, subject to eligibility. See when a Personal Loan makes sense and when it doesn't if you're still deciding.

An ongoing, recurring shortfall is a different problem entirely, and no single loan product solves it. If shortfalls are happening every pay cycle rather than occasionally, that's worth treating as a budgeting conversation first, a loan second.

What happens if you can't repay

Circumstances change, and a good lender plans for that rather than pretending it won't happen. If you're struggling to make a repayment, the first step is always to contact your lender before the due date, not after. Ask directly what hardship options exist, most licensed credit providers, including Beforepay, have a hardship policy that sets out how they support customers experiencing financial difficulty. This is worth checking before you borrow, not just after something goes wrong.

Quick decision checklist

• Have I checked the total cost, not just the weekly repayment?
  
• Have I compared the comparison rate, not just the interest rate?
  
• Do I know what happens if I miss a payment?
  
• Does the amount fit comfortably in my budget, separate from what I've been approved for?
  
• Is this a one-off shortfall or a recurring one?
  
• Is the lender licensed and transparent about its hardship policy?
  

Ready to see what you're eligible for?

Check your options and review the exact costs and repayments before deciding whether to apply, see how Beforepay works for the full process. If this is your first time borrowing, our Personal Loan tips for first time borrowers is a good next read. Subject to eligibility. Terms of Service apply.