Personal loans

Personal loans offer competitive rates and flexible repayment terms

Use a personal loan to simply boost your bank balance, take that much-needed holiday or treat yourself to something special. The choice is yours!

This guide will help you choose the right type of personal loan, the right repayment terms, the right lender and the right loan features.

What is a personal loan?

The phrase personal loan could be used to describe a range of credit options from a payday loan to a car loan – provided that it is credit that is issued on a once-off basis, that interest and/or fees are charged and that it's then repaid within an agreed time frame.

That being said, when we speak of a personal loan in this guide we do not refer to payday loans, quick loans, business loans or any other type of loan that falls into another category and cannot be considered a general-purpose loan for personal use.

What is the maximum amount you can borrow?

The maximum amount you can borrow is around $50,000 to $100,000. However, some lenders may offer higher amounts for secured loans where an asset such as a car or property is used as collateral.

What is a secured personal loan?

A secured loan refers to a loan that is supported by an asset, such as a vehicle or property, serving as collateral. In the event of loan default, the lender has the authority to take possession of the collateral to settle the debt. Due to the reduced risk associated with these loans, lenders typically provide lower interest rates and extended repayment periods.

But, wait! 

It's important to remember that just because you are eligible to borrow a certain amount doesn't mean you should. It's crucial to assess your ability to repay the loan comfortably without putting yourself under financial stress.

Types of personal loans

There are several types that you can choose from. Each type has its own benefits and drawbacks, so it's important to take some time to consider your options before making a decision.

Common types of personal loans

Secured vs unsecured loans: What's the difference?

A secured loan is a type of loan that is backed by collateral, such as a car or house. If you default on the loan, the lender can seize your collateral as payment for the debt. Because these loans have less risk for the lender, they usually offer lower interest rates and longer repayment terms.

Unsecured loans do not require any collateral and are based solely on your credit history and income level. These loans typically have higher interest rates and shorter repayment terms because they are considered riskier for the lender.

Fixed vs variable interest rates: Which is better for you?

A fixed-interest rate loan has an interest rate that stays the same throughout the life of the loan. This means that your monthly payments will also remain constant, making it easier to budget for them over time. A variable-interest-rate loan has an interest rate that fluctuates over time based on market conditions.

But what exactly does that mean?

This means that your monthly payments can vary as well, making it more difficult to budget for them over time. Choosing between a fixed or variable interest rate really depends on your personal preference and financial goals.

If you prefer stability and predictability in your finances, then a fixed-rate loan may be better suited for you. However, if you're willing to take on some risk in exchange for potentially lower rates in the future, then a variable-rate loan may be worth considering.

You can use your personal loan for almost anything

A personal loan can be used for just about anything but, that doesn’t mean that it is a good idea to do so – especially when considering things like purchasing a car or starting a business. Personal loans are typically used for the following:

• Debt consolidation
• Home renovations
• Weddings
• Overseas holidays
• To purchase electronics
• To purchase furniture

Factors to consider before taking out a personal loan

Who offers personal loans?

When you need a low-interest personal loan you have many more options than just your local bank. You can opt to make use of a peer-to-peer lender, a credit union, an online lender or even a pawnbroker.

Banks: These brick-and-mortar lenders generally offer average interest rates, standard fees, competitive products and good overall services. Using a bank to get a personal loan can be one of the cheapest options if you have good credit.

Credit Unions: They operate very much like banks in terms of the services and products they offer to customers however, they typically offer lower interest rates and lower fees than banks do. This is because they are member-owned and value-orientated rather than profit-driven.

A P2P Loan: Peer-to-peer lenders act as an online middleman between people that want to borrow money and people that want to borrow it from them in hopes of achieving a higher-than-average return on investment. This is likely to be one of the most affordable loans.

But wait, there's more!

Alternative Lenders: If you have less than perfect credit or need your personal loan very quickly you can make use of a smaller boutique lender or an alternative online lender. These loans may be interest-based or may carry a once-off percentage fee and ongoing loan management fee.

What’s important to consider is whether or not the product they’re offering meets your needs, has reasonable repayment terms, affordable interest rates and low fees. If any of these needs are not met it may be preferable to look elsewhere or reconsider your need to borrow money completely.

What about brokers?

Brokers do not offer loans directly but rather partner with a panel of lenders and help borrowers get matched up with a lender and loan product that they qualify for and that meets their needs.

When you apply with a broker the broker will send out your application to this panel of lenders and relay to you what options you have.

But, are these brokers looking out for your best interests?

While there are many helpful brokerage services, many of them offer customers loans that will earn them the highest commission. If you're new to lending it's always best to avoid brokers and make use of direct lenders only.

Secured vs unsecured loans

Essentially there are two different types of personal loans – secured and unsecured. Once you choose which of these two types of personal loans will suit you best – you will find it a lot easier to find the right type of lender and loan.

Unsecured: Unsecured personal loans are loans that do not need to be secured against a motor vehicle, property or other asset and typically come in smaller amounts with higher interest rates than secured loans carry. These loans can be used for holidays, weddings and debt consolidation in certain cases.

Secured: A secured personal loan is typically used to purchase a vehicle, take out a larger loan or when the borrower has a bad credit history and cannot secure an unsecured loan. The loan will be secured against the vehicle or asset being purchased or against a property. Secured loans typically carry a low-interest rate than unsecured loans as the lender can repossess the asset to make up for a default.

Interest rate options

Fixed: A fixed-rate personal loan is one where the interest rate the lender applies to your loan does not change over the entire course of the loan. With this option, you will know exactly what your repayments are going to be for the life of the loan so you can budget accurately. The downside is that you will typically pay larger instalments on the loan than with a variable-rate loan.

Variable: When you take out a variable interest rate loan, you will not always be able to predict what your repayments will be since the rate may stay the same, increase or decrease over the lifetime of the loan. This kind of loan typically carries a lower interest rate but makes it harder to budget and can increase significantly.

Compare interest rates and fees from different lenders

Before taking out a personal loan, it's important to do your research and compare interest rates and fees from different lenders. This will help you get a better understanding of what kind of loan you can afford and which lender offers the best value for money.

But beware, not all is as it seems!

Keep in mind that lower interest rates might come with higher fees, so make sure to evaluate the overall cost. 

Speak with a financial advisor or credit counsellor who can help you navigate the different options available to you. They may have access to exclusive deals or be able to negotiate better terms on your behalf.

Check if there are any hidden costs or penalties

When researching personal loans, be sure to read all of the fine print before applying. Some lenders may have hidden costs or penalties that could end up costing you more in the long run. For example, some lenders charge an early repayment fee if you pay off your loan before the agreed-upon term.

Other potential hidden costs might include application fees, ongoing account-keeping fees, or late payment fees. Make sure to ask your lender about any additional costs associated with the loan before signing on the dotted line.

Look for reviews and feedback from Other customers

Last but not least, it's important to read reviews and feedback from other customers when choosing a personal loan provider. This can give you insight into how easy it is to work with that lender, how responsive they are to customer service inquiries or complaints, and whether they offer competitive rates and terms.

But, here's the secret.

Don't just rely on reviews from the lender's website, as these may be biased. Instead, look for independent review sites or social media groups where customers can share their experiences.

You may be surprised to find out this next point.

One or two negative reviews don't necessarily mean a lender is terrible. Yes, you read that right! Look for patterns and overall satisfaction levels to get a better sense of whether the lender is a good fit for you.

Comparing personal loans

One of the best ways to compare secured, unsecured, fixed and variable interest rate loans is by using a loan comparison site like Canstar, Mozo or Info Choice among others. This will allow you to view a variety of lenders’ products, their rates, fees and options.

Questions to ask before applying for a loan:

• How much do I need to borrow?
• Should I opt for a secure or unsecured loan?
• Would a variable or fixed interest rate better serve my needs?
• Which lenders offer what I need?
• What is the interest rate?
• Can I repay my loan early with no penalty?
• What additional fees will I be charged?

How to apply for a personal loan

Who can apply for a personal loan?

In order to apply for a personal loan from any of the hundreds of lenders in the country you need to be at least 18, have a regular income, a good credit history and be either a citizen or permanent resident of Australia.

What documents do you need to provide?

When applying for a personal loan in Australia, you'll typically need to provide proof of identity (such as your driver's license or passport), proof of income (such as pay stubs or tax returns), and evidence of any assets you own (such as property or vehicles).

You may also be asked to provide bank statements and other financial documents. Make sure you have all the necessary paperwork before applying for a loan - this will help speed up the application process.

Ready to go?

While most lenders offer an online loan application there are still a few credit unions and alternative lenders who only accept face-to-face applications within a branch.

If you know of a branch where you can apply and have no issues taking the time to do so then you do not have to look for a lender that allows you to apply online. If you want a quick and paperless application then an online lender or a peer-to-peer lending will be your best bet.