A personal loan is when you borrow money, which you'll repay plus interest in regular instalments over a set period (usually 3-5 years). Personal loans can be used to buy cars, consolidate debt, pay for holidays and more.
The minimum amount you can borrow with many personal loans is $1,000. The maximum amount you can borrow is often $50,000. With some personal loans, you may be able to borrow up to $100,000. There are even a few personal loans that will let you borrow a maximum of $300,000!
Simplify your budget by combining multiple smaller debts into one personal loan
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If you’re aiming to clear your debts in the short-to-medium term, it might be worth considering consolidating your debts into one personal loan.
What is an interest rate?
The interest rate is the percentage extra you’ll need to pay your lender with each loan repayment. When comparing personal loans, looking for the lowest personal loan interest rates is often a good way to start.
You won’t just be paying interest to your lender – personal loans often involve other fees and charges too.
What can I use a personal loan for?
When you’re making a personal loan comparison, it’s important to consider how you plan to use the loan.
Some of the types of personal loans that are available include:
- Personal loans for buying a car
- Personal loans for debt consolidation
- Personal loans for holidays
- Personal loans for weddings
- Personal loans for home renovation
- Personal loans for student fees
- Personal loans for hospital bills
- Personal loans for veterinary bills
- Personal loans for dental work
- Personal loans for cosmetic surgery
How do personal loans work?
After your personal loan application has been approved, you'll usually receive the money as one lump sum. You’ll need to pay this money back, plus interest, in weekly, fortnightly or monthly repayments.The main steps to get a personal loan are:
- Application: when you apply for a personal loan, you'll need to show proof of income, bank statements and personal identification. If you’re applying for a secured loan, you’ll also need to provide details of your security asset.
- Assessment: the lender will look at your personal finances to work out if you can afford the loan.
- Credit check: responsible Australian lenders perform credit checks whenever someone applies for a loan. These checks help lenders work out if you’re a responsible borrower. They may also help determine your personalised interest rate.
- Contract: once your application has been approved, you’ll be asked to sign a personal loan contract. This confirms the length of your loan, the type of loan, and that you understand the fees involved.
- Repayment: some personal loans will let you choose weekly, fortnightly or monthly repayments, to better suit your budget.
What types of personal loans are available?
Personal loans are available with fixed or variable interest rates. Fixed interest rates will stay the same, while variable rates may rise or fall. If your variable rate falls, you'll pay less interest with each repayment, but if rates rise, you'll pay more.
Fixed rates can make your budgeting simpler, as you’ll have the same rate for the whole loan. However, you may miss out on savings if variable rates fall.
Do you own a car, a property, or other valuable asset, and want to save on a personal loan? Using your asset to apply for a secured personal loan may let you enjoy a lower interest rate, as there’s less risk to the lender.
But if you don't own an asset that can secure a loan, or you don't want to risk losing your security if you can't afford the loan, unsecured personal loans are also available.
|Type of personal loan||What to consider|
|Fixed rate personal loan||
|Variable rate personal loan||
|Secured personal loan||
|Unsecured personal loan||
What interest rates and fees are involved with personal loans?
A personal loan with a low interest rate that charges high fees may turn out to be more expensive than a personal loan with a high interest rate and low fees.
Personal loan fees could include:
- Upfront costs – establishment fees or application fees
- Ongoing fees – annual fees and/or monthly fees
- Late payment fees – if you miss a payment
- Extra repayment fees – some lenders charge fees for paying more onto your loan
When you compare personal loans, check the comparison rate to get better idea of the loan’s total cost. The comparison rate combines a loan’s interest rate and standard charges into a single percentage.
However, a loan’s comparison rate may not include its nonstandard fees and other costs. It’s also important to look for value-adding extra features or benefits that could help you further narrow down your personal loan shortlist.
Compare personal loan rates in Australia
The best personal loan rates will change, as banks and other lenders adjust their personal loan offers. It's always wise to research your options by comparing personal loans to find the best for you.
Why should I compare personal loan rates?
Comparing interest rates is a quick way to work out which personal loans are the most affordable. But the best personal loan for you may not be the cheapest.
It’s important to also look at a personal loan’s fees, features and benefits to work out if it could suit your needs, now and in the future.
At RateCity, you can compare personal loan rates, features and benefits side by side, to make a more informed decision.
How much does a personal loan cost?
To work out your interest costs, it's a good idea to use a personal loan calculator. Check different repayment scenarios, with different interest rates, loan terms and loan amounts.
For example, here's how much a $20,000 personal loan might cost:
|Loan term||Interest rate||Monthly repayments||Total repayments|
You’ll also need to think about upfront and ongoing fees. Upfront fees can range from $0 to $700, while ongoing fees can range from $0 to $15 per month.
How do I choose the best personal loan?
When you compare personal loans, consider which of the following will best suit your financial situation:
- A variable or fixed interest rate
- A secured or unsecured car loan
- The length of your loan
- Whether you should apply for a bad credit personal loan
- Whether you will make extra repayments
- Whether you need a redraw facility
RateCity can help you quickly compare personal loan rates and how much time it will take to pay the loan back.
What personal loan term should I choose?
|Type of personal loan||Average length of loan||What to consider|
|Shorter term personal loan||Under 12 months||
|Typical personal loan||3 - 5 years||
|Longer term personal loan||7 - 10 years||
How can I pay off my personal loan early?
One way to pay off your personal loan sooner is to make extra repayments. This could mean paying a bit more than the minimum each month. It could also mean adding a lump sum onto your loan when you can afford it, such as when you get a tax refund.
Extra repayments can reduce the principal amount you owe. This can reduce your future interest charges and bring you closer to exiting your loan early.
However, some lenders charge fees for making extra repayments or exiting a loan early. These fees are more common for fixed rate personal loans, though they sometimes appear on variable rate personal loans too. Before exit a personal loan early, make sure this won’t cost you more than you expect.
Can I get a personal loan with a redraw facility?
Making extra repayments can help you get ahead on your personal loan, but may leave you short on savings in your bank account. If your money is tied up in a personal loan, you may struggle to afford car repairs, surprise medical bills, or urgent travel expenses.
With a personal loan redraw facility, you can withdraw your extra repayments, subject to terms and conditions. This can be handy if you want to pay less interest on your personal loan, but still want access to your money.
Keep in mind that not all personal loans come with redraw facilities, and those that do may charge extra fees.
Can I refinance a personal loan?
Even the best personal loan rates can change. If you find a more competitive personal loan, or you want to consolidate your debt, you could refinance your personal loan. To refinance a personal loan, follow these steps:
- Check your credit score, as it may have changed while paying off your existing loan
- Compare personal loans to find a more competitive option
- Calculate refinancing costs (break fees, application fees etc.)
- Apply for the new personal loan
- Ensure your old loan is paid off
You could refinance a personal loan to consolidate other debts. These could include outstanding credit cards, or even other personal loans. Debt consolidation can make your budget easier to manage, as you’ll have just one repayment to think about each month. Not every lender offers personal loans for debt consolidation, so check the terms and conditions first.
How do I apply for a personal loan?
To apply for a personal loan, most lenders will require that you:
- are at least 18 years old
- are an Australian citizen, permanent resident or have a valid visa
- are employed or receive regular income
- earn a minimum income (dependent on lender)
- have a good credit rating
When you make a personal loan application, you’ll typically need to provide:
- Proof of identity (driver’s licence, passport etc.)
- Proof of income and employment (payslips, tax information)
- Details of any other financial commitments
- Details of additional assets (particularly for secured loans)
Where can I get a personal loan with bad credit?
If you have a history of borrowing and repaying money on time, you should have a good credit score. But if you've had money trouble in the past, you may have a bad credit score.
If you have bad credit, or even fair credit, you may find it harder to get a personal loan. Some specialist lenders offer bad credit personal loans, but these loans often have higher interest rates and fees.
If you have bad credit and are struggling with debt, you can contact the National Debt Helpline on 1800 007 007 to speak with a free financial counsellor.
Which is the best bank for personal loans?
Personal loans are available from Australia’s big four banks (ANZ, Commonwealth Bank, Westpac or NAB) and smaller banks. You can also apply for personal loans from credit unions, mutual banks and peer to peer lenders.
The best choice for you will depend on your financial situation, personal needs and credit history.
It’s important to compare personal loans from different banks and other lenders before you apply. Look for a loan that you’re confident you can afford, and offers features that suit your needs.
If more than half of your income comes from Centrelink benefits, it may be more difficult to have a $2000 loan application approved. Many lenders will check if you can afford a loan’s repayments on the income from your job before they’ll approve an application, and many won’t count Centrelink payments when assessing your income for this purpose.
Some lenders may offer $2000 loans to borrowers on Centrelink – consider contacting potential lenders to check before applying.
Medium amount loans can be repaid between 16 days and 2 years. Many personal loans have terms between 1 year and 5 years, though some are as short as 6 months while others last for 10 years.
Generally, the shorter a loan’s term, the more expensive your regular repayments may be, but the less total interest you’ll pay. Loans with longer terms mean more affordable repayments, but more interest charges over the full term.
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.
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.
Personal loans may require a borrower to provide proof of identity, proof of residence, details of any other outstanding loans (including credit cards), details of assets they own (e.g. savings, car, property), and proof of income.
While borrowers in full-time or part-time employment can often provide payslips and similar documents to prove their income, self-employed borrowers may need to provide other documents, such as bank statements or tax returns, to demonstrate that their income can cover a loan’s repayments.
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.
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.
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.
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.
Many lenders will allow you to make extra repayments onto a quick personal loan when you can afford them, or even exit the loan early, which can help reduce the total interest you are charged. Be sure to check your quick loan’s terms and conditions, as some lenders charge early exit fees for paying off a loan ahead of schedule.
Senior Financial Writer
Mark Bristow is a senior financial writer for RateCity and an experienced analyst, researcher, and producer. Working for over ten years, Mark previously wrote and researched commercial real estate at CoreLogic, and has seen articles published at Lifehacker and Business Insider, among others. Most recently, Mark has joined RateCity working across finance as a whole. Whatever the topic, Mark’s goal is always to provide simple solutions to complex problems.