Generally, personal loans are for individuals to use, while business loans are for managing business expenses. However, in some cases it is possible to take out a personal loan for business purchases, though it’s important to compare your options and know the risks involved.

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Learn more about personal loans

Generally, personal loans are for individuals to use, while business loans are for managing business expenses. However, in some cases it is possible to take out a personal loan for business purchases, though it’s important to compare your options and know the risks involved.

Can you use a personal loan to buy a business?

It may be possible to use a personal loan to buy a business, though depending on the size of the business you’re buying and the status of your personal finances, there may be other finance options available to choose from.

One of the first things to check before applying for a personal loan to buy a business is whether your chosen lender provides personal loans for this purpose. Some lenders may not be willing to take the financial risk of lending you money to buy a business that may or may not succeed, leaving you unable to pay back your loan.

Can you use a personal loan for anything?

Many lenders limit what you can do with one of their personal loans, to help reduce their financial risk.

For example, a lender may be happy to lend you money to buy a car (if you don’t pay them back, they can often cover their losses by repossessing and selling the car), but less inclined to give you a loan to splurge on a holiday (once that money’s gone, it’s gone).

If a lender doesn’t usually offer personal loans for the purpose you have in mind, you may be able to contact them and see if they’ll make an exception, or you can compare other finance options from alternative lenders.

What risks are involved when using personal loans to purchase a business?

As the name implies, a personal loan is taken out by an individual person, and not a company (that’s a business loan). This means responsibility for the loan is all on you – even if your business fails through no fault of your own, it’s your finances and your credit rating that will bear the financial consequences, which may leave you struggling to borrow money in the future.

If you take out a secured personal loan, you may pay a lower interest rate, but you may lose your security asset (your deposit, your car, even your business) if you’re unable to repay the loan. Unsecured personal loans don’t require you to put a security asset at risk, however they’re more likely to have higher interest rates.

There’s also the risk that your lender may choose to decline your personal loan application if it feels your business is too risky. Even lenders who offer unsecured personal loans for any purpose may still ask what you intend to do with the money as part of their application process, and your answer may affect their final decision.

Is it better to get a personal loan or a business loan?

If you’re a sole trader, a personal loan can sometimes allow you to buy an established business, or to get a startup business off the ground. However, this does leave you with repayments and financial risk to manage as an individual, which could be difficult if your business is not as successful as you’d hoped.

It’s important to remember that personal loans are often assessed based on your ability to repay the loan on your current income, and don’t take potential future income (such as money made by a business) into account. This could potentially cause problems if you’re planning to leave your current job and concentrate on the business you’re buying.

If you’re looking for finance to purchase an existing business that is already operating, a business loan may be worth considering. Unlike personal loans, business loans can be applied for by groups and not just individuals, which can be helpful if you’re buying a business with the help of one or more partners.

When applying for a business loan, you’ll likely need to provide more information than you would for a personal loan, such as a full business plan, complete with details of the business’s income and expenses. The lender may also consider the level of risk in your industry (e.g. niche markets may be considered riskier than more stable industries), and the relevant experience of you and your partners when assessing your business loan application (e.g. if you’re buying a restaurant, but you haven’t worked in hospitality before, that may raise a red flag).

Do you need a deposit for a small business loan?

Much like many other types of loans, buying a business with a business loan or a personal loan will likely require a deposit or similar form of security, such as a vehicle, or equity in a property.

Business loans may also require additional information, such as a full business plan, tax information, or details of your qualifications.

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.

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.

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.

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.

How long do personal loans take?

Depending on the lender, some personal loan applications can be approved in as little as one hour, or you may need to wait until the next business day. If approved, you may receive your money on the same day, the next business day, or within the week.

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.

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.

Are there low doc personal loans?

Self-employed borrowers may be eligible for low doc personal loans, which require less documentation in their application process than many other personal loan options.

It’s important to remember that though low doc personal loans may require less paperwork, you may need to provide additional security, or pay a higher interest rate.

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 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.

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

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.

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 get a $4000 personal loan if I’m unemployed or on Centrelink?

Before most providers of personal loans or medium amount loans will approve an application, they’ll want to know you can afford the loan’s repayments on your current income without ending up in financial stress. Several lenders don’t count Centrelink benefits when assessing a borrower’s income for this purpose, so these borrowers may find it more difficult to be approved for a loan.

If you’re unemployed, self-employed, or if more than 50% of your income come from Centrelink, consider contacting a potential lender before applying to find out whether they accept borrowers on Centrelink.

Do student personal loans require security?

While some personal loans can be secured by the value of an asset, such as a car or equity in a property, student personal loans are often unsecured, which typically have higher interest rates.

Some lenders also offer guarantor personal loans to students. These loans have lower interest rates, as a guarantor (usually a relative of the borrower with good credit) will fully or partially guarantee the loan, taking on the financial responsibility if the borrower defaults.

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.