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What is the best personal loan in Australia?

When it comes to the best personal loan, there is no one size fits all option. Some borrowers may define their best personal loan as charging the lowest interest rate, some may favour personal loans that offer features, like making additional repayments, and some borrowers may be focused on finding an option with a credit union instead of a big four bank.

Generally speaking, the best personal loan is the one that:

  • Helps you achieve your financial goals;
  • Charges you a competitive interest rate;
  • Charges you little to no fees;
  • Is with your ideal financial institution;
  • Offers helpful loan features (if this is important to you); and
  • Is best suited to your financial situation and budget.

The best way to figure out what personal loan may best suit you is to do your research, shop around and compare the most important aspects of a personal loan.

What can you use a personal loan for? 

Your best personal loan option will be one that helps you achieve your financial goals. There are a range of different loan purposes that may be considered for a personal loan, including:

  • Holidays
  • Weddings
  • Student loans
  • IT Equipment
  • Home renovations & home improvements
  • Appliances
  • Furniture
  • Removals
  • Visa Applications
  • Debt consolidation, and much more.

How do you find the best 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).

To find the best personal loan for your financial situation, you’ll want to do your research around the different features that make up a loan. Comparing each feature carefully may assist you with finding the right product for you.

FeatureAbout
Interest ratesArguably the most significant cost associated with a personal loan. Interest will be charged by the lender on top of the principal owing (loan amount) over the life of your personal loan. The lower the rate, the less interest charged.
Interest rate typeThe two personal loan interest rate types are fixed rates and variable rates.
  • A fixed interest rate sees your interest rate locked in so your repayments will not change, offering you greater stability in your budget.
  • Variable interest rates may fluctuate according to market conditions, meaning your rate could increase or fall, depending on the lender, the Reserve Bank of Australia’s cash rate and the economy. Loan features, like a redraw facility, are generally offered more with variable rate loans.
Secured vs. UnsecuredWith a secured personal loan, any asset offered up as security could be seized to cover the personal loan amount if you default on your repayments.

An unsecured loan is not secured by an asset, but this represents a greater risk to the lender. With no security 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 to reduce the lender’s financial risk. These types of loans come with strict criteria, to ensure borrowers can meet their repayments.

FeesThere are several fees you may be charged by a personal loan lender, including upfront costs (e.g. establishment fees or application fees), ongoing fees (e.g. annual fees, service fees/monthly fees), late payment fees, early repayment fees, redraw fees and more.
Loan termYour loan term will also affect your budget and the amount you pay in interest overall. A short loan term (1-3 years) may mean higher weekly, fortnightly, or monthly repayments, but less interest charged overall compared to a longer-term loan (4-7 years), which offers lower ongoing repayments but more interest over the life of the loan.
Loan featuresPersonal loan features may include:
  • Extra repayments – Making additional repayments on your mortgage may help you chip away at your principal owing, so you pay off your loan faster and are charged less interest.
  • A redraw facility – A personal loan with a redraw facility offers you the flexibility of being able to withdraw extra repayments you’ve made for whatever reason, such as an unexpected bill.

    Keep in mind that not all personal loans come with features, and those that do may charge higher interest and/or fees for the privilege.

Personal loans vs. line of credit

Another option to consider when searching for financing options is an unsecured line of credit. Also called an ‘overdraft’, a line of credit loan will only incur interest charges on the credit you have used, as opposed to interest charged on the total loan balance.

This may make it more appealing for some borrowers than a personal loan as it is more like a credit card than a personal loan. You are not paid a lump sum but instead access credit as you need it.

How to find your best personal loans

Now you have a deeper understanding of what features you want for your personal loan, it’s time to shop around and compare your options. After all, you wouldn’t buy the first car you saw in a dealership without test driving it first, and the same is true of personal loans.

There are a range of tools that may help you to filter down and narrow your personal loan search until you’ve created your ideal shortlist of options. This includes:

Comparison tables

If you want to find your best personal loan options, comparison tables can be a great place to start. Comparison tables help you to compare apples with apples. You enter the amount you want to borrow and the loan term and then filter down your loan options based on the features in the above table. Then you can compare your options side by side to see how they stack up on several factors, including interest rate, monthly repayments, and Real Time RatingsTM score.

Comparison rates

If keeping costs low is how you define the best personal loan, then you may want to look at the comparison rate also. Interest rates are not the only cost associated with a personal loan, and this is where a comparison rate comes in. It is a combination of a loan’s interest rate with some of its fees and other charges, such as ongoing fees and upfront fees.

A comparison rate aims to create a more “realistic” cost of the loan, based on a $30,000 personal loan over five years. As your loan size and term may differ, this calculation may not reflect exactly what you’ll be charged for your personal loan. But different comparison rates may be one way to gauge whether your loan options have fewer or greater ongoing fees.

Real Time RatingsTM

Real Time RatingsTM is RateCity’s world-first rating system that ranks personal loans based on your individual requirements. Each personal loan is given a score out of five, based on loan costs and flexibility. It then takes into consideration your ideal loan size, loan term, borrowing purpose and if you’re securing the loan, to give you a more tailor-made result.

Unlike other comparison pages which rank their products once or twice a year, Real Time RatingsTM results are calculated live, so they are up to date as possible. Looking at the Real Time RatingsTM score may be one way to help you narrow down your shortlist of best personal loan options.

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How do you get approved for the best personal loans?

Gaining approval for the most competitive personal loans on the market may take a little more effort than just submitting your application. You'll want to ensure you're in a healthy financial position before you apply. 

It’s important to review a few things before you fill out any personal loan application form, especially as every loan application you are rejected from will make a negative impact on your credit history.

Documents you will need

Lenders favour borrowers who pose less of a risk that they may miss payments or default, and having stability in your personal finances is crucial for showing this. This is why personal loan lenders have strict eligibility criteria would-be borrowers must meet to gain approval.

To get a personal loan, you will need to provide the lender with the following in your application:

  • Proof of identity (driver’s license, passport etc.)
  • 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

They will analyse your personal information against their eligibility criteria to help determine whether you are not only qualified for loan approval but can be offered their more competitive rates.

For example, if you’re still in the probation period of a job or you’ve got several unpaid debts, you may want to hold off on applying until you’re in a more “stable” financial position in the eyes of the lender.

Steps to apply for a personal loan

  1. Check your credit rating: You will generally need a credit score that sits in the good credit to excellent credit category to qualify for a personal loan. Knowing your credit score may help you to have better understanding of which loan products and interest rates you may qualify for. And if it’s lower than expected, you may want to consider boosting your credit score before applying. Visit RateCity’s credit score hub to access your free credit reports and credit scores within minutes through a soft credit check that will not impact your credit history. 
  2. Review your budget: Hop on to RateCity’s Personal Loan Calculator to get an estimate of your potential loan repayments to see how this may fit within your budget. You want to ensure you’re taking on a debt that you can afford to repay comfortably so that the lender is more likely to approve your application.
  3. Compare your options: Use RateCity’s comparison tools (as listed above) to help you narrow down your shortlist of personal loan options.
    Check the lending criteria: Next, follow the link in the comparison tables to the lender’s website and check to see whether you meet its eligibility requirements to avoid having your application rejected.
  4. Prepare your application: Now you’ve chosen your best personal loan, it’s time to complete your application. This is when you’ll want to gather the required documentation (listed above) to ensure a smooth application process. Depending on your lender, you may be able to submit an online application or apply in branch.
  5. Submit your application and wait for approval: Congratulations, you’re ready to submit your application. It may take your chosen lender a few hours up to several business days to offer you a response.
    Keep in mind that making multiple personal loan applications will hurt your chances of approval, and any loan rejections will affect your credit score. Try to only apply to one personal loan at a time. Then, if you are rejected for one, take some time to review and improve your personal financial situation and credit history before applying again.

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This article was reviewed by Personal Finance Editor Georgia Brown before it was published as part of RateCity's Fact Check process.

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.

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.

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.

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.