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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

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.

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.

Where can I get a personal loan?

The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:

There are three main ways to access personal loans. You can go through a comparison website, such as RateCity. You can use a finance broker. Or you can directly contact the lender.

How are personal loans regulated?

Personal lenders in Australia are regulated by ASIC (the Australian Securities & Investments Commission) and must follow responsible lending rules. That means they can’t lend money without making “reasonable inquiries” about a borrower’s financial situation and ensuring the loan is “not unsuitable” for them.

What are the pros and cons of personal loans?

The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.

One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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