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5.95

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36 months

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Learn more about 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.

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 history 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. It's also important to remember that borrowers with stronger credit scores will typically have access to lower interest rates than borrowers with bad credit.

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

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?

It's important to weigh up both the benefits and disadvantages of an unsecured personal loan before deciding if it's the right fit for your financial situation.

  • You don't need to offer any collateral, such as a property or a car.
  • The application process is typically more simple as there's no need to provide details of an asset.
  • You'll generally be charged a higher interest rate than if you were able to offer collateral.
  • 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 in Australia?

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
7% $495 $4,702 $29,702
8% $507 $5,415 $30,415
9% $519 $6,138 $31,138
10% $531 $6,871 $31,871
11% $544 $7,614 $32,614

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.

How do I apply for an unsecured personal loan?

Once you have a clear picture of your loan purpose and borrow amount, applying for a personal loan can be simple. Here's how:

  1. Search and compare personal loans. If you're looking for unsecured loans specifically, you can use RateCity's comparison table to filter down your search results.
  2. Use a personal loan calculator to see how different interest rates and loan terms will affect your repayments, and work out what best fits your budget.
  3. When you've selected the best loan for you, check the lending criteria for eligibility and apply online.
  4. Once approved, the total amount will be moved into your loan bank account ready for use.

How to strengthen your chances of getting your loan application approved

Most lenders require borrowers to meet the following basic eligibility criteria:

  • Be 18 years of age or over
  • Be an Australian citizen or permanent resident
  • Have proof of permanent, regular employment (lenders will generally also specify a minimum income requirement)

In addition to this, it can also help to have an excellent credit score, a history of good credit behaviour and comprehensive documentation that meets all requirements. Submitting an accurate and complete loan application can help avoid delays with processing.

What other types of unsecured financial products are there?

In addition to personal loans, there are other options when it comes to unsecured personal finance products. The most commonly used unsecured finance products are:

It's worth considering each of these products when deciding what's right for you. The best choice would be dependent on your requirements, including the borrowing purpose, borrow amount and how long you will need to pay it off.

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.

Frequently asked questions

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.

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.

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.

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.

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.

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.

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 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.

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.

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 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 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.

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.

What do credit scores have to do with personal loan interest rates?

There is a strong link between credit scores and personal loan interest rates because many lenders use credit scores to help decide what interest rates to offer to potential borrowers.

If you have a higher credit score, lenders will probably classify you as a lower-risk borrower. That means they’ll be keen to win your business, so they may offer you a lower interest rate if you apply for a personal loan.

If you have a lower credit score, lenders will probably classify you as a higher-risk borrower. That means they might be concerned about you defaulting on the loan and costing them money. As a result, they might protect themselves by charging you 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.

Will comprehensive credit reporting change my credit score?

Comprehensive credit reporting may change your credit score, either positively or negatively, depending on an individual's situation.

Under comprehensive credit reporting, credit providers will share more information, both positive and negative, about how you and other Australians manage credit products. That means credit reporting bureaus will be able to make a more thorough assessment of everyone’s credit behaviour. That will lead to higher scores for some consumers and lower scores for others.

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.