A personal loan is an unsecured loan, which means that the borrower does not have to put up any security or collateral to guarantee the repayment of the loan.
Personal loans are commonly used for a number of different purposes including:
- Debt Consolidation
- Home Improvement
You can use a personal loan for just about any need you have.
Personal loans can be easy to get but usually come with high interest rates. Before you apply for a personal loan, ask yourself if you really need the money and if you’ll be able to pay back the debt.
This Personal Loan Calculator can give you much of the information you need to make the best possible choice for your situation.
Tip: Try adjusting your down payment to see how it affects your monthly payment and total interest cost. What if you used some of your savings as a down payment instead of borrowing the full amount you need? How much money would you save?
When Should You Use Personal Loans?
Personal loans are helpful during times of financial stress when you don’t have an emergency fund. They usually don’t require guarantors and the approval process is fast – but remember, the price you pay for this convenience is a high interest rate.
Interest rates for personal loans can rise up to 15-25% per year. However, this can be better than credit card interest rates. This is one of the reasons why personal loans are often used to pay off credit card debt.
When Should You NOT Use Personal Loans?
The problem with a personal loan is the high interest rate.
For this reason, you should pursue alternative lending sources that result in lower financing costs before taking out a personal loan.
For example, mortgage financing secured by your principle residence is usually more affordable than a personal loan. Similarly, auto financing secured by the title on your vehicle is usually a better deal than an unsecured personal loan.
Since personal loans usually are taken in response to financial emergencies, it is better to plan ahead and build an emergency fund for these “unexpected” events rather than incur the high costs of paying later at very high interest rates.
However, if you’re already past that point and in financial stress right now then at least make sure you shop aggressively for your personal loan to get the best deal.
Another tip for personal loans is to never use them to fund discretionary purchases. After all, what is the point in having a luxurious gadget if you cannot enjoy it without worrying about how you’ll repay the debt? Stated simply, if you cannot pay cash for your luxuries, it simply means that you cannot afford them. In this situation, a personal loan is no solution.
Let’s summarize some of the key points regarding personal loans:
- Personal loans are usually issued for a fixed amount – You can borrow anywhere from $500 to $100,000 depending on needs and lender terms.
- Personal loans usually have fixed interest rates – No need to worry about variable rates that can affect your ability to pay.
- Personal loans have a fixed repayment period – Loan periods are typically stated in months.
- Personal loans are unsecured – You won’t have to put up collateral in order to borrow.
Keeping these qualities in mind, use the Personal Loan Calculator to wrestle with your personal loan options and make a smart decision for you and your family.
Personal Loan Terms & Definitions
- Personal Loan – An unsecured loan, which means that the borrower does not have to put up any security or collateral to guarantee the repayment of the loan.
- Monthly Payment – The fixed amount that is required to be paid every month over the course of the loan term.
- Loan Term – The amount of time during which a loan is repaid.
- Personal Loan Amount or Purchase Price – The total amount you owe or would owe for your personal loan.
- Down Payment – An initial payment made when something is bought on credit.
- Annual Interest Rate – The annual rate that is charged for borrowing, which is expressed as a percentage number that represents the actual yearly cost of funds over the term of the loan.
- Number of Monthly Payments – The number of months that you will be paying your personal loan.
- Prepayment Penalty – The penalty you need to pay to the financial institution if you pay off your personal loan before the term.
- Interest Cost – The total amount of money paid regularly at a particular rate for the use of money lent.
The questions we’ve been asked about personal loans
How quickly can I get the money from my personal loan?
Different lenders can have your loan amount transferred to you within different amounts of time. Some banks are able to offer existing customers same-day personal loans, and some payday lenders can have loan amounts transferred to new customers within an hour of approval. If you are in need of the cash as soon as possible it is advisable to check to see how long it will take to receive your loan amount before you apply.
What is the average interest rate on a personal loan?
At the time of writing the average rate is 12% p.a. It’s important to keep in mind interest rates can fluctuate from 5.9% p.a up to 30% p.a. (or more depending on your credit score). The rate will depend on whether the loan is a fixed or variable rate, or secured or unsecured.
What can the lender do if you fail to repay a secured personal loan?
Secured loans, as the name suggests, means that you offer something of value as security on the loan. If you don’t pay you may find the bank will repossess your car and sell it.
What’s the best personal loan?
Unfortunately, there’s no easy answer to this question. The best loan for you will depend on what you need and also what loans you’re eligible for. You can use the comparison tables available on finder.com.au to compare similar loans and select the most competitive loan option that offers the features you want. If you are eligible, then you can apply.
Can I pay back my personal loan early?
You may be able to pay back your personal loan early depending on the conditions of your loan. Most variable rate personal loans allow for additional repayments or paying back the loan ahead of time without penalty. Fixed rate personal loans usually come with exit fees and early repayment fees or limitations on how much you can repay ahead of schedule. You will need to check if there are fees involved before paying extra on your loan. While you may save on interest repayments, you may not come out ahead if you have to pay the early payout fees. You can calculate how much you could potentially save with this calculator. You can find out if you can repay your car loan early on this page.
I’m having trouble repaying my loan – what do I do?
If you are having trouble repaying your loan you’ll need to get in contact with your lender. They may be able to organise a payment plan with you, or be able to offer you some sort of option to help you manage your repayments. You also have the option of getting in touch with a free financial counsellor on 1800 007 007 to help you organise a budget.
Can my personal loan be funded on the same day?
Same day personal loans are a relatively new feature, and requires a you meet the criteria set out by the bank. Some require you to be an existing customer or apply by a certain time of day, and are approved, you’ll get access to your funds on the same day. Find out what lenders offer this feature.
Can I be approved for a loan if I work part-time or casually.
Yes. Many lenders will consider you for a personal loan if you work part-time or casually. Check if you meet the criteria here.
Do I have to tell the lender what I’m using the money for?
The answer to this question depends on what type of loan you are getting. If you are getting a secured car loan then all details of the car and finance agreement and registration must be given to the bank or lender before you receive the money. If, however you are getting an unsecured personal loan, then you only need to give a general idea of the loan purpose to the bank. If you are consolidating debts then you’ll have to give details of your other loans and credits to the institution.
Can I buy a car with a personal loan?
You can consider an unsecured personal loan or a secured personal loan if you’re Personal loans can be used for purchasing a car especially if you want to buy an older model or a car that does not fit in with a lenders criteria. An unsecured personal loan could be used for a car. It is important to keep in mind that these unsecured personal loans come with a higher interest rate than a loan secured to a vehicle.
Can I take out a personal loan to cover a valuation shortage or to pay LMI?
If you’ve been approved for a home loan that falls short of your chosen property’s valuation you may be considering if it’s worth it to apply for a personal loan. Personal loans might also be on the table to cover LMI. While this is an option, you need to consider if you will be approved for your personal loan (consider the home loan you’ve been approved for) and whether you can afford the repayments on top of what you’ll be paying towards your mortgage.
What’s the difference between a credit union personal loan and a bank personal loan?
Credit unions are different to banks in that they operate in a not-for-profit business model. Typically you will find there are not as many fees or charges with a credit union loan which means the interest rate could be lower. Credit Unions are governed by the same regulations as banks so it’s just as safe to apply for a credit union personal loan.
Why has the interest rate on my personal loan changed?
If you have a variable rate personal loan, then you may notice that your interest rate may go up or down. This could happen due to a range of factors but it mainly based on what the Reserve Bank of Australia dictates the official cash rate is. If you’ve found you rates have gone up, it may be a good time to consider refinancing your personal loan.
Should I take out a personal loan or a credit card?
Credit cards can give you convenient access to a line of credit, and you have the choice between a personal loan or credit card for a variety of purchasing needs. To work out which option is best for you think about how you need to make the purchase (if it’s in cash you’ll be charged a cash advance rate for a credit card), how you like to repay your loan (you can choose to just repay the minimum amount with a credit card) and what you’re purchasing with your funds.
Is it safe to get a personal loan from Gumtree?
If you have bad credit and are worried that you may not get a loan from a bank or credit union, you may see ads for personal loans on Gumtree and want to apply. As with any form of finance you should always do your due diligence before applying. You should always check for a Australian Credit Licence and research the lender thoroughly. Alternatively, you could consider a no credit check personal loan lender.
What’s the difference between short term loans and personal loans?
Whilst a short term loan, also known as a payday loan is a type of personal loan, there are a range of differences that make this type of lending completely different. Personal loans are generally taken out over one to seven years, whereas a payday is between 16 days and one year. Payday loans are also for smaller amounts – between $100 and $5,000 – and are available to those with bad credit.
How much should I borrow?
Personal loans can vary greatly in size from $1,000 and upwards of $80,000. If you’re purchasing an asset such as a car keep in mind you may need funds to cover insurance. Many banks and lenders will consider up to $20,000 and $30,000 to be a medium sized loan. If you are only going to borrow between $10,000 and $20,000 then a small personal loan may suit your needs better.
What is loan protection insurance and do I need it?
Many lenders offer loan protection insurance as an add-on to your personal loan. This insurance can pay the minimum repayments on your personal loan if you lose your job, or cannot work because of illness or injury. You usually apply for the insurance when you are approved for the loan but you may be able to get the insurance further into the loan term.
Can I get a personal loan for my solar panels?
There is increasing demand for loans from people like you who want to protect mother earth. Many Banks offer different loan products for solar hot water, solar panels and even grey water treatment facilities.
How much do you have to earn to get a personal loan?
Most lenders will have a minimum income that you need to earn to be eligible, but others will only require that you are employed or have the means to repay the loan.
Does my credit score affect my ability to get a personal loan?
Lenders use a variety of information to determine your eligibility for a personal loan, including your credit rating. The information on your credit file includes negative information such as defaults and bankruptcy listings and personal information such as your name and address. From July 2018, more positive information will be included in your credit file, including the last two years of your repayments for credit accounts.
You can check your credit score for free with finder to get a better idea of where you stand.
Will my credit score affect my personal loan interest rate?
Some lenders offer different interest rates to different borrowers depending on how risky they are to lend to. This is what’s called “risk-based pricing”. Lenders that use risk-based pricing may use your credit score as an indicator of how risky you are to lend to.
How do I repay a personal loan?
Once you’ve actually successfully applied and received your funds, it’s important to keep your loan up to date. If you’ve applied for a loan with the bank your everyday account is with, then you will probably have automatic direct debit setup. If your loan is with a separate institution then it is a good idea to set up an automatic transfer via internet banking a few days before your due date to allow for processing times. You’ll be able to check your balance, interest rate, repayment dates and schedules. You should login to your loan account regularly to check notifications and payments details. If you want to make additional payments then you could do this by internet transfers, BPAY or if your bank allows it – over the counter deposits. If you miss a payment due to insufficient funds then it is important to call the bank and attempt to rectify the situation as soon as possible.
Am I able to get out of a car contract with a car dealer?
Yes, you are. You have the right to cancel a contract within three clear days after you’ve signed the contract unless you are responsible for the car’s delivery within this time.
What does “three clear days” mean?
Three clear days does not include the day on which you signed the contract. It also excludes a Saturday, Sunday or a public holiday. A notice stipulating your cooling-off rights must be included in your contract.
How can I cancel my contract through cooling-off rights?
It’s important to know whether or not you are able to cancel your contract through the cooling-off period. Once you know that you are able to do this, fax a letter to the vehicle trader explaining that you would like to break the contract through the cooling-off period. Keep a copy of it and ask for proof that the company received it within three days of you signing the contract.