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Learn more about personal loans

What is the best personal loan?

The best personal loan is the one that’s most suited to your needs. And the best way to figure out what that might be is to do your research, shop around and compare the most important features of a personal loan.

Before you get started, it’s a good idea to have a clear understanding of how much you want to borrow, what you want to use it for and what features are important to you (in terms of both the loan product and the lender).

How do you find the best personal loan?

When it comes to choosing financial products, the best one will always depend upon your personal circumstances. There is no standard ‘best’ product for everyone, but there are a few things you can do to choose the best one for you.

Identify why you need a personal loan 

Before you begin researching the best personal loan for you, it’s important to think about what you need it for, why you need it and how you want to access the funds. A personal loan has a fixed term over which you will need to repay the debt in structured repayments. Interest will be charged on the debt depending on a variable or fixed interest rate.

What can you use a personal loan for? 

There are a range of different loan purposes that may be considered for a personal loan, including:

  • Holidays 
  • Weddings 
  • Student loans 
  • IT Equipment 
  • Renovations 
  • Appliances 
  • Furniture 
  • Removals 
  • Visa Applications 
  • Debt consolidation, and much more. 

The funds for a personal loan are released all at once, so if you are a frivolous spender or undisciplined saver this may not be the best option for you. However, if you have a large purchase or debt that you need to pay off at once, then a personal loan could work for you. 

If you are looking to buy a car, for example, a car loan is a type of personal loan that could help you make your purchase when you don't have the total cost of the car upfront.

Tip

If you are indebted to multiple lenders, a debt consolidation loan could be a possible option for you. By combining your loans into one personal loan, you could save money on interest charges and manage your repayments more easily.

Personal loans vs. line of credit and overdrafts

Standard personal loans differ from lines of credit and overdrafts in the way they are repaid. Personal loans provide all the funds at once, in a single lump sum, and have a fixed loan term. Line of credit loans and overdrafts however, are more flexible in how you borrow and withdraw your funds, up to a maximum loan amount. Instead of receiving the funds in a lump sum, you can access funds with lines of credit and overdrafts as you need it up to your credit limit.

Is a line of credit a type of personal loan? 

A line of credit is a type of personal loan, where you can access money up to a maximum loan amount. You don’t need to reapply to withdraw money, and you're only charged interest on the amount you borrow.

Is an overdraft a personal loan? 

Overdrafts can either come as part and parcel of a savings or transaction bank account that you have opened, or you can apply for one separately. An overdraft is not a personal loan as such, but shares some features with a personal loan. Overdrafts can be a simple way to access extra money, but you can be charged hefty fees for the convenience.

Insider Tip

Similar to a credit card, line of credit loans and overdrafts can provide a flexible, ongoing source of funds. These loans may be better options for disciplined spenders, but if you’re looking to make larger repayments in a more structured manner, a standard personal loan may be a better option.

Which type of personal loan is best?

Personal loans vary in a number of ways. However, the main differences are in how interest is charged and whether the loan is secured. 

Fixed vs variable rate personal loans 

  • Fixed interest rate: personal loans with fixed rates charge the same interest rate for the length of the loan. That means you agree to pay a set amount of interest as part of the loan repayments each month. Regardless of whether your lender changes interest rates, your repayments will stay the same. This can be appealing as it keeps your expenses certain and  makes budgeting easier. However, you could miss out on savings if your lender reduces their variable rates.
  • Variable interest rate: personal loans with variable interest rates mean your repayments could change at any time. You could save money with a variable rate personal loan if there’s a rate cut, as your interest costs and repayments will fall. However, if your bank or lender raises their rates, you could be left out of pocket.

Secured vs unsecured personal loans 

A secured loan has collateral as security on the loan, whereas an unsecured loan does not.  

  • Secured loans: with a secured personal loan, your financier will ask you to insure the loan using an asset that you own. This asset will be used to cover the personal loan amount if you default on your repayments.  
  • Unsecured loans: an unsecured loan is not secured by an asset, and so it represents a greater risk to your lender. With no insurance on your loan, they cannot recover their losses if you fail to meet your repayments.

Lenders typically charge higher interest rates on unsecured personal loans in order to reduce the lender’s financial risk. These types of loans come with strict criteria, to ensure borrowers can meet their repayments.

 

 

Insider Tip

If you're considering a variable rate personal loan and have a strict budget, it's generally considered wise to budget for a rate rise of up to 3 percentage points to ensure that you can afford repayments.

How do you apply for a personal loan? 

Applying for a personal loan can be as simple as an online application. However, every loan application you are rejected from will negatively impact your credit history. That’s why it’s important to check a few things before you fill out any personal loan application form.

What documentation do you need for your application? 

To get a personal loan, you will need to show your lender: 

  • Driver’s license or passport to prove your identity 
  • Bank statements or utility bills to prove your address 
  • Income statements or pay slips, to prove your income 
  • Bank or credit card statements to show your spending habits 
  • Recent tax returns or financial documents 
  • Details of current outstanding debt 

Make sure you can afford your repayments 

Personal loans have lower interest rates than other lending methods like credit cards. However, it’s important you check that you can afford the repayments. RateCity's Personal Loan Marketplace and Personal Loan Calculator were built with you in mind, to provide you with personalised search results and repayment estimates.

Check both the interest rate and the comparison rate 

Shopping around and making personal loan comparisons is a key part of the process. There are dozens of loan providers in Australia, and you shouldn't assume your current bank or financial institution will offer you the lowest interest rate or the best deal.

When you begin to compare the best personal loan for you, you need to check both the advertised rate and the comparison rate. The comparison rate combines a loan's advertised interest rate with its standard fees and charges, giving you a more accurate idea of the overall cost of the loan. Be sure to watch out for any extra fees and charges that aren’t included in the comparison rate. You should ask your preferred lender whether any of these apply.

Check the fees and charges 

Just as with all financial loans, lenders charge a number of fees to ensure they reduce their financial risk. They are taking a risk by lending you a large sum of money, and as such they need to charge these to protect their investment. It's important to take any applicable fees and charges into account when doing your calculations as they can really add up over the life of the loan.

Personal loans can come with ongoing fees and other charges that include: 

  • Application fees
  • Establishment fees
  • Account keeping monthly fees
  • Extra repayment fees
  • Early repayment fees or exit fees
  • Administrative fees
  • Late payment fees  
  • Redraw fees

How to find the top personal loans for you on RateCity

Finding the most suitable personal loan for you isn't just about looking for low interest rates. There are also a number of other factors to consider when deciding which loan is right for you.

To simplify the process, you might like to utilise RateCity's personal loan comparison table to narrow down your search results to the loans that best fit your requirements. Use the filter to search for specific lenders, features such as redraw facilities, or security type. Then, select your borrow amount, preferred loan term and apply your credit score.

Once you have your personalised search results and you’ve made a shortlist of your preferred finance options, consider checking available documentation, such as the Product Disclosure Statement (PDS), so that you can make an educated decision before beginning the application process.

RateCity's Real Time Ratings may also assist with your search by ranking personal loans based on your individual lending requirements. The rating system gives each personal loan on the database a score out of five stars, based on loan costs and flexibility. It also takes into consideration your preferred loan size, loan term, borrowing purpose and security type, so you don’t waste time comparing loans that won't work for you.

Insider Tip

When you’re comparing personal loans, look at ALL the associated fees and costs by reading the key facts and figures sheet for the product, and the product disclosure statement (PDS). Every loan is different, so you need to make sure you look at all fees and charges before signing on the dotted line.

For information specific to your personal financial situation, consider talking to a financial advisor.

Frequently asked questions

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

Is a personal loan a variable or fixed-rate loan?

Depending on the personal loan lender, you may be able to choose between a fixed and a variable interest rate. But, there are a few distinct differences between the two, so it’s important to weigh up the pros and cons before deciding on what’s right for you.

A fixed interest rate loan gets you the convenience of knowing exactly how much you need to repay each fortnight or month. On the other hand, you generally won’t be able to make lump sum or advanced payments to close your personal loan early - or at least not without a penalty.

With a variable interest rate personal loan, you may be able to get a longer loan repayment term, with the option of paying off the loan early. You typically won’t need to pay any additional charges for an early full repayment either. The potential disadvantage with an interest rate that can change is that your repayment is not entirely predictable, as it can fluctuate with the market. However, you’ll likely have more options as more lenders offer a variable interest rate personal loan.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

Can I merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full term.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.

Can unemployed single parents get personal loans?

It can be more difficult for unemployed borrowers to successfully apply for a personal loan. Most lenders require borrowers to have a regular income available to cover the cost of loan repayments.

If you’re self-employed, or if less than half of your income comes from Centrelink, you may not be eligible for some personal loan options. Consider contacting the lender before applying.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What do single parents need for a personal loan application?

Much like applying for other personal loans, applying for personal loans for single parents will likely require the following:

  • Proof of identity
  • Proof of residence
  • Proof of income
  • Details of assets (e.g. car, home)
  • Details of liabilities (e.g. credit cards, other loans)
  • Loan amount
  • Loan term