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Working out how much to borrow

What you need to know about personal loans.

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So you are buying a new car, or getting married, or booking that holiday? It’s natural to be excited about these things but it’s important that you balance the excitement with careful planning and budgeting.

If you’re considering a personal loan or car loan, think about how the regular loan repayments will fit in with your lifestyle and income.

It’s a good idea to understand what you may need when you apply. Lenders will look into your personal circumstances to determine whether the loan is suitable for you. Some things that may be considered during your application include:

  • Salary or other income
  • Existing debts
  • Family status
  • Your credit rating.

Balancing your lifestyle and budget

Your lifestyle is important when considering how much you should borrow. If sacrificing dinner with friends to repay your car loan sounds unbearable, re-adjust your borrowing ambitions to a smaller amount. Budgets are much easier to meet when you allow some extra room to live life a little!

Ensuring you have some extra room in your budget to indulge in life’s little luxuries will also ensure some money is available for any unexpected expenses. Your budget planning should consider your everyday lifestyle and expenses, as well as possible changes to your income.

You should also consider why you’re taking out a personal loan or car loan. For example, if you’re considering a car loan to buy a new luxury SUV, the loan will cost more than a loan for a small hatchback which you could afford to pay off sooner. The cost of a car doesn’t end there either.  Remember to also budget for Green Slips, comprehensive insurance, roadside assistance and petrol costs. It’s also important to note a car’s age may also affect the kind of loan you may be able to apply for and the interest rate you receive.

What to know about personal loans

Personal loans have a range of different features you should know about before making a decision. Personal loans can come with fixed or variable rates of interest, and may be secured or unsecured. 

Here’s a brief explanation of these differences:

1. Fixed rate personal loans

Interest rates for these types of loans are fixed and stay the same over the loan term. This means the amount you are required to repay each month will remain the same over the lifetime of a loan.

2. Variable rate personal loans

Interest rates for these types of loans can change over time. Importantly, this will affect the amount you are required to repay over the life of the loan.

3. Secured personal loans

For a secured loan, an asset is used as a guarantee, or security against the loan. The asset used as security may be the asset you are purchasing with the loan (i.e. a new car) or may be another asset that you already have. This kind of loan commonly has lower interest rates because if you fail to make repayments your asset could be used to pay off your loan.

4. Unsecured personal loans

An unsecured loan doesn’t require an asset to be used as security or guarantee, however because it is unsecured it may have higher interest rates.

At Newcastle Permanent, we provide both secured and unsecured fixed rate car and personal loans, which may make budgeting easier as opposed to a variable rate loan.

How much should you borrow?

You may want to use our personal loan calculator to work out how much to borrow. Online calculators are a great way to get indicative information on how much you could borrow and what the repayments would be. The calculator may give you an indication of:

  • How much your repayments will be
  • Repayment frequency and interest rates
  • How extra repayments could reduce your term.

For a better understanding of how much you can borrow it is always best to speak with a lender. A lender will be able to give you a more detailed understanding of your borrowing capacity.

Whichever loan you apply for, just remember to stick to the golden rules - be sure you only borrow an amount you can comfortably repay while still enjoying the lifestyle you’re used to.


This article is intended to provide general information of an educational nature only. It does not have regard to your objectives, financial situation or needs and must not be relied upon as financial product advice. Before you act on this information, you should consider whether it is appropriate for your circumstances. Information in this article is current as at the date of publication. Applications subject to credit approval and fees and charges are payable. Terms and conditions apply and are available on request.

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