Compare unsecured personal loans
Unsecured personal loans
Have you decided to take out an unsecured personal loan? If so, the first thing to do is pause and ask yourself whether you really need it. That's not to say there can never be a good time to take out an unsecured personal loan – just that you need to make sure you really need one.
Borrowing money can be expensive. It can also have serious long-term consequences if you're unable to repay the money. In that case, your credit rating will be damaged, which will make it harder for you to qualify for future loans. You might even be taken to court by the aggrieved lender.
If you've decided that you do need an unsecured personal loan, your next step should be to conduct research and compare personal loans. An obvious place to start is the comparison search tool at the top of this page, which will allow you to compare many unsecured personal loans.
This tool will allow you to compare rates and fees and features from a range of lenders, so you can get an idea of how much you'd have to repay per month and how you'd be able to manage the loan.
As you do your research, one of the things you'll have to consider is whether an unsecured personal loan is the most appropriate loan for your circumstances, or whether you wouldn't be better off with a secured personal loan. To make the process easier, we've provided answers for a few commonly asked questions about unsecured loans.
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What are unsecured personal loans?
Unsecured loans are personal loans where you don't have to provide the lender with any security, or collateral. That makes them different to secured loans, which are personal loans where you do need to provide security, such as property or a car.
If you default on a secured loan, the lender can seize your collateral, sell it and then use the sale proceeds to repay the loan. If you default on an unsecured loan, the lender will be unable to automatically seize one of your assets
Don't assume, though, that defaulting on an unsecured personal loan doesn't have consequences or that your debt will magically disappears. The lender might pursue legal action and the court might then order the forced sale of one of your assets. You might also be forced into bankruptcy.
Why do people use unsecured personal loans?
Unsecured personal loans generally have higher interest rates than secured personal loans. So why, then, do people choose them? One reason is that they're unable to provide adequate security – perhaps because they don't own any valuable assets or because those assets have been used to support other loans.
Other borrowers, though, are able to provide adequate security for a personal loan, but are just unwilling. One reason might be that they don 't want to risk their assets; another might be that they want to use those assets to support other loans.
Before pursuing an unsecured personal loan, it could be worth doing an online credit check to make sure your credit score would qualify you for a loan. Lenders are usually willing to consider unsecured loans, but are likely to ask for evidence that you will be able to repay the money loaned to the term agreed between you.
Ten uses for unsecured personal loans
There are many ways you can make unsecured personal loans work for your life, including the following:
|Consolidate your debts||Go on a dream holiday|
|Get married||Moving home|
|Furnishing a new home||Renovating your home|
|Paying school fees||Paying off medical or hospital bills|
|Fixing your car||Funeral expenses|
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What are the main features of unsecured personal loans?
The main feature of an unsecured personal loan is the interest rate. These loans generally come with higher interest rates than secured personal loans, because they represent a greater risk to the lender. One reason lenders do this is to incentivise borrowers to provide security.
Some unsecured personal loans allow you to make extra repayments, which gives you the chance to pay off the loan sooner and reduce your total interest bill. A related feature of some unsecured personal loans is a 'redraw facility', which means you can make repayments ahead of schedule but then take back this extra money if you ever need it.
Unsecured personal loans can be useful if you want several thousand dollars for, say, a car, whitegoods or a holiday. As with any loan you need to be conscious of your ability to pay it back and so need to factor in whether you will go for a fixed or variable interest rate.
What are the pros and cons of unsecured personal loans?
The big advantage with unsecured personal loans is that you don't need to offer any collateral, such as a property or a car. The big disadvantage is that you'll be charged a higher interest rate than if you were able to offer collateral. Another disadvantage is that there are fewer lending options out there.
What's the difference between fixed-rate and variable-rate personal loans?
A fixed-rate loan can't be changed during the period for which it's 'fixed ' or locked in. For example, if you take out a three-year fixed-rate unsecured personal loan priced at 9.75 per cent, you're guaranteed to be charged 9.75 per cent during that three-year period.
However, if you take out a variable-rate loan priced at 9.75 per cent, the lender can change the interest rate whenever it likes. Variable loans can be moved up or down – so people who fix tend to be pleased with their choice when interest rates move up but can regret their choice when rates move down.
What's the difference between the advertised rate and comparison rate?
It's easy to be confused when you see an unsecured personal loan with two different interest rates – the advertised rate and the comparison rate. The main difference between the two is that comparison rate is usually higher than the advertised rate. (It can be the same, but will never be lower.)
The advertised rate is how much interest you'll be charged – but this figure can give a misleading impression of how much you 'll have to pay, because it doesn't include fees. As a result, the comparison rate is regarded as the 'real' interest rate, because it includes both the advertised interest rate and the fees.
How is the comparison rate calculated?
The comparison rate for a personal loan is calculated based on a loan of $30,000 over five years. The reason why the calculation includes a loan amount and loan term is because lenders need a 'standard' personal loan for the sake of comparison. (The loan amount and loan term can influence the interest paid and fees charged.)
Of course, most unsecured personal loans differ from this standard. As a result, comparison rates aren't always entirely accurate. But they're still important, because they often provide a more accurate gauge of a loan's total cost than the advertised rate. (Comparison rates are also used for home loans and car loans – although based on a different formula.)
What fees are charged for unsecured personal loans?
Fees differ from lender to lender, so you might be charged none, some or all of these fees if you take out an unsecured personal loan:
- Establishment fee
- Monthly account-keeping fee
- Late payment fee
- Repayment redraw fee
- Early repayment fee
How much does an unsecured personal loan cost?
There are two main costs for an unsecured personal loan – fees and interest. The fees, as discussed above, vary from loan to loan. The same can be said for interest – although to give you an idea of how different interest rates affect loans, the table below shows how much you 'd have to repay if you borrowed $25,000 over five years:
|Interest rate||Monthly repayments||Total interest||Total repayments|
Features of unsecured personal loans
- Advertised rate – e.g. 8.50 per cent
- Comparison rate – e.g. 9.75 per cent
- Fees – establishment; monthly; redraw; late payment; early repayment
- Loan size – e.g. $30,000
- Loan term – e.g. 5 years
- Loan type – variable or fixed
- Loan purpose – debt consolidation; wedding; renovations; holiday; medical
- Repayment frequency – weekly, fortnightly or monthly
- Repayment options – extra repayments; redraw facility
How much can I borrow with an unsecured personal loan?
Unfortunately, asking how much you can borrow with an unsecured personal loan is like asking how long a piece of string is. That 's because there is no one standard figure. Instead, borrowing capacity differs from person to person and lender to lender.
So just because a particular lender gives a friend of yours an unsecured personal loan of, say, $5,000, it doesn 't mean that the same lender will automatically give you a $10,000 unsecured personal loan. You might be able to get only $5,000.
Also, if Lender X is willing to give you an unsecured personal loan of, say, $8,000, it doesn't mean Lender Y will also lend you $8,000 – Lender Y might only give you $6,000, or might not be willing to give you any money at all.
Who offers unsecured personal loans?
Unsecured personal loans are offered by several dozen different lenders. That includes the big four banks – ANZ, Commonwealth Bank, NAB and Westpac. It also includes leading non-major banks like Citibank, HSBC, Bankwest, St George, Bank of Queensland, Suncorp, MyState, Bank of Melbourne, BankSA, Heritage Bank, Greater Bank, Hume Bank and IMB Bank.
But the market for unsecured personal loans doesn't end there. It also includes non-bank lenders like Pepper Money, Liberty, Now Finance and Latitude Financial Services. Unsecured personal loans are also offered by peer-to-peer lenders like SocietyOne, RateSetter, Harmoney and Moneyplace.
Is a credit card better than an unsecured personal loan?
As a general rule, borrowing money through a credit card is worse than taking out an unsecured personal loan, because the credit card will almost certainly charge higher interest. Also, credit card providers don 't force you to follow repayment plans – unlike personal loan lenders.
The one exception to the rule is if you borrow money through a credit card and then pay off the entire debt during the interest-free period – because then you wouldn't pay a cent of interest. However, you shouldn 't attempt this strategy unless you're certain you can pull it off, otherwise it could land you in a debt trap.
Kate was one of RateCity's Personal Finance Commentators. She has been a journalist for more than a decade, most of which has been spent writing about money. Most recently, she was the Australian Financial Review's personal finance correspondent. She is passionate about personal finance and women's independence.
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In the best-case scenario, an application for a bad credit personal loan can be made within minutes and then be approved within 24 hours. However, if a lender needs more information or needs more time to verify the provided documents, the application process may take longer.
The worse your credit history, the harder you will find it to consolidate your debts, because lenders will be less willing to lend you money and will charge you higher interest rates.
However, people with bad credit histories can make debt consolidation work by following this three-step process:
- First, find a lender willing to give you a bad credit personal loan. This process will be simplified if you go through a finance broker or use a comparison website like RateCity.
- Second, make sure the interest repayments on your new loan are less than the repayments on the loans being replaced.
- Third, instead of spending those savings, use them to pay off the new loan.
Lenders aren’t allowed to charge interest on loans of $2,000 and under. Instead, they make their money by charging a one-off establishment fee of up to 20 per cent and a monthly account-keeping fee of up to four per cent. Lenders might also ask you to pay a government fee.
For loans between $2,001 and $5,000, lenders can make their money in only two ways: a one-off fee of $400 and annual interest rates of up to 48 per cent.
For loans of $5,001 and above, or for loans that have terms longer than two years, lenders can charge annual interest rates of up to 48 per cent.
Those fee caps don’t apply to loans offered by authorised deposit-taking institutions such as banks, building societies or credit unions, although such institutions are highly unlikely to charge interest rates of anywhere near 48 per cent.
Some lenders are able to approve applications with little documentation and within minutes. However, there is a catch. People who take out easy/instant loans generally pay higher interest rates and are restricted to lower amounts than people who follow a traditional borrowing process.
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.
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.
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.
The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:
- The big four banks (ANZ, Commonwealth Bank, NAB and Westpac)
- Smaller banks (such as Bank of Queensland, Bendigo Bank and MyState)
- Mutual banks (such as Heritage Bank, Greater Bank and Newcastle Permanent)
- Credit unions (such as People’s Choice Credit Union, BCU and Community First Credit Union)
- Non-bank lenders (such as Pepper Money, Liberty and RACV)
- Peer-to-peer marketplaces (such as Harmoney, SocietyOne and RateSetter)
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.
It’s unusual for a lender to provide a personal loan of above $100,000, although there is no formal limit. As with all lending products, each lender sets its own policies, while each borrower is assessed on a case-by-case basis.