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personal loans in Australia


It's not uncommon for Australians to find themselves in a position where they need some extra cash. You might want to consolidate high-interest debts, purchase a new car or renovate your home. Whatever the reason, there are options available for those who find themselves a little short.

“Where do I start though?” is the question that comes up frequently in relation to personal loans in Australia. The following guide might help clarify the process. 

Choosing a personal loan in Australia

The first thing you'll need to do when you're looking at Australian personal loans is to figure out what exactly you want from your loan. Your loan’s purpose is important because lenders often assess your suitability for a personal loan based on what your loan purpose is. For example, some lenders are OK with you borrowing for a renovation, but not for a wedding. 

How much to borrow

Before you apply for the loan, it's critical you figure out how much exactly you wish to borrow and, importantly, whether you will be able to repay that amount. 

Once this has been decided, consider conducting research into the following:

The loan’s term: While spreading your repayments across several years could lead to smaller weekly or monthly repayments, this might also increase the amount of interest you pay overtime.

Your credit provider: Consider using ASIC professional registers search to check whether your lender is licensed.

Associated fees: Some loans involve various associated fees, which can be discussed with your lender.

Early exit fees: Some loans charge a fee if the total borrowed amount is repaid prior to the loan’s fixed term.

Secured vs unsecured

Both secured loans and unsecured loans in Australia have associated benefits as well as risks, so the type of personal loan most suited to your situation will depend on your purpose for applying for a loan.

A secured loan refers to a loan which is tied to an asset. Most commonly offered for assets such as cars and homes, secured loans are generally granted on the premise that the associated assets act as a guarantee, thereby giving the lender the ability to reposes the asset and sell it to obtain the amount owing if you default on your loan. This reduces the risk factor for the lender, which is why you might find that the interest rates associated with secured loans can be lower than those associated with the alternative—unsecured loans.

Unsecured loans are loans which do not require security on the borrower’s part. Such loans are generally granted for smaller amounts than secure loans, for personal discretionary purposes such as renovations, travel or medical bills. Some lenders might allow you to nominate family members to act as guarantors for unsecured loans, thereby reducing the risk associated with the loan for the lender.

All about interest rates

Once you’ve decided on a type of loan, the next step is to examine the associated interest rates and work out whether repayments are affordable for you. Interest rates on personal loans in Australia can vary significantly, so it's important to find a personal loan that offers all your essential features, without costing you too much each month in interest. The higher the interest rate, the more you will have to repay on top of the amount borrowed in the long run.

When researching personal loans, you will come across two main types of interest rate – fixed interest rates and variable interest rates.

Opting for a personal loan with a fixed interest rate can be beneficial as the rate will remain the same for the duration of the personal loan, regardless of market rates. That being said, if market rates happen to drop, you will still be bound to the fixed interest rate you agreed to.

Variable interest rates, on the other hand, fluctuate with market rates. While they do leave you with the risk of having to adhere to a very high interest if market rates increase significantly, they will also allow you to benefit from a lower rate if market rates drop. 

Are personal loans regulated?

The short answer the that question is yes. The National Credit Act sets the rules for providers and consumers of credit, including personal loans in Australia.

According to ASIC, “Anyone who wants to engage in credit activities (including lenders, lessors and brokers) must be licensed with ASIC or be a representative of someone who is licensed (that is, they must either have their own licence or come under the umbrella of another licensee as an authorised credit representative or employee).” The law also specifies that credit providers should not enter into contracts which are unsuitable – the borrower’s financial situation and ability to meet repayment requirements must be assessed by the lender prior to entering into the contract. The law also sets parameters for fees and charges allowed on personal loans in Australia.

Applying for a personal loan in Australia

How easy it is to apply for a personal loan in Australia could depend on your finances and the type of personal loan you are hoping to get approved. Your lender of choice might have personal loan options which suit your needs. Doing your research before committing to a personal loan could assist you to obtain the best financial outcome. Make sure to check out RateCity’s personal loan comparison page when researching potential loans and lenders.

Once you decide on a lender and loan amount, approaching the lender with your questions and specification is the next step to take. Most lenders will require you to produce certain documents prior to granting approval, so ensure you have access to these to make the process as fast as possible.

Another option is to consult a finance broker and let them organise the loan on your behalf. Most finance brokers won’t charge for the service; instead, they’ll earn a commission from the lender.

Necessary documents

Once you apply for a personal loan you mostly likely will be asked to produce proof of identity, finances and employment, in order for the lender to assess your eligibility for the loan and ability to meet repayment requirements. Examples of documents you might be asked to provide include:

Proof of identity

  • Driver’s license
  • Passport
  • Proof of age card
  • Birth certificate
  • Utility bills

Proof of income

  • Recent pay slips
  • Recent tax returns or financial statements
  • Recent ATO tax notice of assessment

Proof of ability to meet repayment requirements

  • Bank statements
  • Credit card statements
  • Information on any other loans undertaken

If you’re applying for a personal loan for the purpose of purchasing a car, you might be asked to provide additional documentation relating to the car and its insurance policy.

Pros and cons of personal loans in Australia

Being approved for a personal loan could provide you with the financial assistance needed for that big purchase, holiday or renovation you had in mind. A personal loan’s interest is also typically lower than that of a credit card, meaning you will have to pay less in interest in the long run. That being said, taking out a personal loan will add to your debt, which might not be ideal for those who already have a large amount owing on a home loan or credit card or other personal loans.

As with any financial decision, it’s important to do your research prior to committing to a loan. Visit RateCity’s personal loan comparison page to find out more about personal loan options which suit your needs.

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