personal loans just one way to deal with unexpected expenses

Written by The ReReport

LARGE unexpected expenses are hitting the household budgets of two-thirds of Australians, and many are resorting to dangerously expensive credit cards to get themselves out of a financial jam.Cars are the biggest cause of unpleasant financial surprises, according to new research by marketplace lender SocietyOne, followed by travel costs and medical bills.The lender’s When ‘It’ Happens report reveals that 40 per cent of people would cover unexpected costs by borrowing money from family and friends, almost 20 per cent would add the expense to their mortgage, 31 per cent would sell stuff, and 28 per cent would take on extra credit card debt.DAVID & LIBBY KOCH: Beware of lending rip-offsIt found 21 per cent would seek a personal loan from a bank but just 6 per cent would use an online lender. SocietyOne CEO Mark Jones said 65 per cent of his online personal loan customers got better interest rates than banks.“People consider personal loans difficult to access so their default position has been their credit card,” he said.media_cameraNat Ravaneschi”™s latest unexpected expense was a car. Picture: John Donegan“But if you have been responsible, with a good credit history and good repayment history, there are alternatives available. Don’t just get treated like everyone else.”Mr Jones said people in financial difficulty should always speak with their bank early, and avoid the temptation of putting surprise expenses on their home loans because that debt could stick around for decades.The research found that 65 per cent of households have faced unpleasant financial surprises not covered by insurance or their savings, costing them an estimated $52 billion combined.Compare personal loansNat Ravaneschi, 39, has dealt with several unexpected expenses including needing a car after a relationship breakdown, replacing a car’s motor and surgery for her dog (“Vets are expensive”).For her latest purchase, she headed online and secured an $8000 five-year personal loan with SocietyOne, describing it as “a pain-free experience”.“In my case I was extremely stressed that I had a large unexpected expense as I was going through a very messy breakup and had just spent all my little savings on moving house,” she said.Personal budgeting specialist and Sort My Money founder David Rankin said using credit cards to cover short-term financial surprises could cause overall debt to snowball because of their high interest rates, often over 20 per cent a year.“Unexpected expenses are an expected part of life,” he said.“As soon as you accept that fact, you release that you need to be making provisions for them. Pay yourself an amount every month into a dedicated incidentals account, for example $800 for a family.”This account might cover things such as clothes and shoes as well as unexpected expenses, Mr Rankin said.“We all smash our phone and tablet screens at some point, we have more stuff in our lives than before, and we need to provision for these kind of things,” he said.@keanemoneyMANY HAVE FACED SURPRISE COSTS• Car repairs/replacement 36%• Travel 29%• Medical bills 25%• Home repairs 23%• Events 19%• Vet bills 17%• Expanding family 10%HOW THEY’RE PAID FOR• Borrowing from family/friends 40%• Selling assets or belongings 31%• Extra credit card debt 28%• Bank personal loan 21%• Adding to the mortgage 19%• Overdraft 12%• Payday loan 7%• Online personal loan 6%(Source: SocietyOne)Originally published as Unexpected costs that hurt us

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