Unsecured Loans

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Compare Unsecured Personal Loans

Updated on 10 August, 2022

An unsecured personal loan can be a viable option for a range of reasons, including special purchases; but like all loans you need to ensure you understand what you are signing up for and whether it is the right choice for your needs.

InfoChoice can help you compare the rates for unsecured personal loans and understand the terms and conditions that come with different products.

Taking the time to understand how unsecured personal loans work will ensure you get the outcome you want without paying more than you should.

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The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless otherwise indicated in the product name with^, in which case, the comparison rate is based on a loan of $10,000 and a term of 3 years. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise. WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

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What is an unsecured personal loan?

Most loans ask you to provide an asset as security in the event you can’t make repayments. If you fail to make your repayments, the lender has to ability to secure the asset in return. An unsecured personal loan allows you to borrow money without having to provide an asset. Generally, an unsecured personal loan will have a higher interest rate, shorter terms and a limit as to how much you can borrow as there is a higher risk for the lender.

Typically, an unsecured loan can range from $1000 up to $75,000, with a repayment term between one and seven years.

What is the difference between an unsecured and secured personal loan?

A secured loan is attached to a valuable asset or piece of collateral, such as your house or your car. This means that if you do not make your repayments or meet the conditions of the loan, the lender can take possession of that asset. Home loans and car loans are the most common forms of a secured loan.

An unsecured loan means that there is no protection against the loan, so if you fail to repay the loan as you have agreed, the lender cannot automatically take your asset. By nature of the fact you do not need to provide an asset against the loan, an unsecured loan can be used for any worthwhile purchase.

Why would someone take out an unsecured personal loan?

If you are looking to buy a house, car or other significant asset, it would make more sense to look for a secured loan and receive a lower interest rate. However there are some circumstances where an unsecured personal loan might be the better choice.

A personal loan can be used to purchase just about anything, although many lenders will want to ensure that you have a responsible and legal reason.

Some common reasons why an unsecured personal loan could be a good idea include:

1. To make a significant purchase

There are times when you need or want to purchase something significant, but don’t have the cash available. Items like holidays, furniture or necessary household appliances can be costly, and while some sellers will have their own finance options, you may be better taking out your own personal loan. This could give you more flexibility, or a better interest rate – particularly if you were to compare it to a credit card.

2. To consolidate your credit cards

While the interest rate on an unsecured personal loan can be higher than other loans, it will generally be less than the interest rate on a credit card. If you have maxed out a credit card – or have a few cards that are near the limit – it could make sense to consolidate all of that into a single monthly payment through an unsecured personal loan. The key in this scenario is making sure that you don’t quickly run up more credit card debt before the loan is repaid, or your financial situation will be far worse than before.

3. To refinance a student loans or study debt

Similar to a credit card, some student loans have higher interest rates than a personal loan. Refinancing your student loan to a personal loan could offer some financial relief or allow you to pay it off faster. Equally, some study debts will offer a discount if you pay it off early in a lump sum, meaning your total debt will be less.

Be aware however that student loans and study debts often come with tax advantages or conditions, so check with your tax adviser before making any decision.

4. To pay for a wedding

Many people make the mistake of using their credit card to pay for wedding purchases, and unless you can pay them off that month you will face high interest rates and a long repayment. An unsecured personal loan with a lower interest rate than your credit card could save you considerable money. Furthermore, some people find that having a set budget through a personal loan helps them restrict unnecessary or impulse purchases.

How much can I borrow with an unsecured personal loan?

There are limits with an unsecured personal loan, as lenders don’t want to expose themselves to high risk. Put simply, the amount you can borrow will differ from person to person and from lender to lender.

As a general rule, unsecured personal loans range from $1000 to $75,000.

Who offers unsecured personal loans?

An unsecured personal loan is considered a standard loan product and is therefore available through banks big and small. However, non-bank lenders and peer-to-peer lenders also offer unsecured personal loans, so it is worth taking the time to check your options.

What are the benefits of an unsecured personal loan?

As mentioned before, an unsecured personal loan will generally have a higher interest rate than a secured personal loan; however there are some benefits that are worth considering.

1. Increased flexibility

A secured personal loan is generally attached to a specific purchase and therefore have restrictions in how the money can be used. Simple examples include a car loan which is ‘secured’ by the purchase of the actual vehicle and therefore can only be used to purchase that vehicle.

Conversely, an unsecured loan can be used to purchase a wide range of items or – in fact – multiple expenses. For example, by being able to use the loan amount in whatever way you like, you could purchase multiple pieces of furniture and consolidate your credit card debt, all in one loan.

2. A wide range of options

Given the simple nature of an unsecured personal loan, there are many different varieties and options available, allowing you to find one that suits your needs. Lenders will have multiple products, allowing you to choose not only the interest rate that suits you, but whether you want fixed or variable rates, the length of the term, and other features such as the ability to pay back earlier without penalty.

3. Interest rates

As has been mentioned previously, an unsecured personal loan will generally have a higher interest rate than a secured loan, however you can still find competitive rates. Furthermore, ‘higher interest rates’ are a relative term, and an unsecured personal loan will generally have a lower rate than a credit card or some in-store finance options.

What should I look for when comparing unsecured personal loans?

As with any loan, the starting point for most people will be the interest rate; however it’s important to also consider other factors. A few things to keep in mind are:

Interest rate: As with any loan, you have choices whether you want a fixed or variable rate, and a simple comparison table will determine if it’s competitive.

How much can be borrowed: There will be a minimum amount a lender will set to ensure it is worth their while establishing a loan. Most will also have a maximum value, as the risk attached to an unsecured loan means they don’t want to leave themselves vulnerable. As a general rule, most lenders offer unsecured loans between $1,000 and $75,000 so it will largely be a matter of finding a product to suit your needs.

Additional features: Although an unsecured personal loan is generally a simple form of loan, many come with a range of features that you might find useful. Online account management is now generally standard and becomes more important when you have features like the ability to pay off your loan before the term, or if the product offers a redraw facility or other additional features offered by the lender.

Fees and charges: Any loan will have fees and charges, so you should always check what they are before you apply. InfoChoice offers a comparison rate to help you understand the overall cost of the loan – including all fees and charges.

What sort of fees are there with an unsecured personal loan?

Like all loans, it’s tempting to get hooked on the interest rate alone; however there are always fees and charges that you need to factor into your planning. As a starting point, be sure to look for the following common fees:

Any upfront fee: Lenders will often charge an application fee for unsecured personal loans, and given the risk associated to such a product, they can be significant. It is possible, however, to find lenders offering a $0 application fee, so it pays to do your research.

Regular account fees: Unsecured personal loans will often attract a monthly account fee, generally around $10. There are however some products that have no ongoing account fees, which could save you reasonable money over a longer term length.

Early repayment fee: If you think you might be able to pay off your loan earlier than the agreed term, check if the lender will charge you an early payout fee. These fees can be significant, so if you want the flexibility of being able to pay out your loan early, it’s worth finding a product with no early repayment penalty.

InfoChoice offers a comparison rate to help you understand the overall cost of the loan – including all fees and charges – to show you the ‘true’ cost of the loan.

How quickly can I get an unsecured personal loan?

Many lenders offer online options for applications, which can greatly reduce the amount of time to apply for an unsecured personal loan. An online application could take as little as 10 minutes, and many lenders say they will confirm approval and funding in as little as 24 hours.

Naturally, factors such as a complex loan – a high loan value – poor credit history – or lack of documentation can increase the length of time for application and approval.

Can I get an unsecured personal loan with bad credit?

Unsecured personal loans put the lender at a higher risk, so it can be a challenge for people with poor credit history to secure this type of loan. There are however some lenders that specialise in borrowers with poor credit history, offering specific products. These include:

Short term loans: Sometimes known as ‘payday loans’, these unsecured loans are more expensive than other options and have a much shorter term for repayment – as small as weeks through to one year. These loans are also likely to have much lower minimum and maximum amounts than most unsecured personal loans, usually from $100 to $2,000.

Debt consolidation loans: There are lenders who specialise in consolidating multiple debts into one new loan. It is important that you check that any new loan will have a lower interest rate than your current debts or you will be no better off.

Can I get an unsecured personal loan if I’m self-employed?

People who are self-employed are often required to supply more documentation than someone employed by a business. However, if you can supply this information –and have a good credit history – being self-employed shouldn’t stop you from getting an unsecured personal loan.

Common documentation required for self-employed people includes:

Tax returns: It is common for self-employed borrowers to be required to produce up to two years’ worth of personal or company tax returns.

Financial statements: Lenders will generally ask for profit/loss statements to support your income statement.

Notice of Assessment: Lender sometimes ask for up to two years of your Notice of Assessment (NOA) documents.

Proof of rental income: If you have an investment property and generate income from rent, you can declare this to strengthen your application. Real estate statements or copies of your executed lease agreements will suffice.

Recent bank statements: Some lenders are now predominately online and will accept digital statements while others will still request hard copies.

Company-specific information: Information such as your ABN and company location may be asked for by the lender to validate your application.

What happens if I can’t meet my repayments on an unsecured loan?

Lenders would rather find a way to help you through a difficult period and ultimately get their money than take legal action and potentially miss out. As such, if you are having trouble making repayments, it’s important to notify your lender as soon as possible and see what your options are. Most lenders have financial hardship assistance in place for unforeseen circumstances and these systems will help you avoid late payment fees, defaults on your credit rating or legal action.

Unsecured Personal Loans

An unsecured loan allows you to access extra funds without needing to put up an asset as collateral. Bear in mind that they may carry a higher interest rate than secured personal loans, as there is no asset for the lender to recover if you default on repayments.

Our comparison table details the maximum cost, minimum monthly repayments and current interest rates for unsecured loans from a range of banks and credit unions.

Unsecured Personal Loans FAQs

Should I get a fixed or variable personal loan?

Fixed personal loans give you security and peace of mind as your interest rate remains the same for the full loan term, while interest rates on variable personal loans can go up or down during the loan term.
If you are looking for certainty in budgeting and are comfortable with the repayments on offer, a fixed rate might be right for you – however you need to be aware of any charges and fees if you wish to pay out the loan early. Variable loans leave you open to fluctuations in interest rates; however often come with more features and options.

What are the pros and cons of personal loans?

If you have a good credit history and are seeking funds for a reasonable purpose, personal loans are generally easier to obtain than a home loan. Equally, if you have a significant purchase to make, a personal loan will generally have lower interest rates than credit cards.
It is worth remembering however that a personal loan will have a higher interest rate than a home loan, and the application process will be more time consuming than a credit card.

Credit card or unsecured personal loan?

It depends what you are planning to purchase. If you are looking to buy something that is relatively affordable – and you could repay the cost with a month or two – you will generally be better with a credit card. However, if the purchase is larger – or it will take you considerable time repay the full amount – a personal loan will have lower interest and ultimately save you money against a credit card.

What is a guarantor?

In some circumstances, you will be asked for a ‘guarantor’. This is a person linked to your loan as a form of security for the lender. The guarantor is not a co-applicant, but they need to be aware that their credit may be at risk if the borrower defaults on their loan. Guarantors pledge their assets against the loan; effectively promising to pay the loan if the borrower defaults.

Can I get an unsecured personal loan for business purposes?

In short – typically not. You will need to apply for an unsecured business loan specifically designed for business purposes.

Is it hard to improve your credit score?

If you have bad credit history, or simply want to improve your credit score, you usually need to demonstrate some sacrifice and discipline. Simple ways include closing unnecessary credit cards, reducing the limit on credit cards, and paying off loans on time.

Financial Dictionary

Annual fee Lenders generally charge an annual fee on loan products.
Comparison Rate A Comparison Rate is the interest rate plus fees and charges rolled into a single percentage rate for ease of comparison.
Credit report/history A history of your loan and bill payments. This information is kept by a credit bureau and used by financial institutions to determine your ability to pay debt.
Credit score/rating Your credit record and history is scored by a number that determines whether you are credit friendly. The takes into account ability to pay bills on time, current level of debt and types of credit and loans.
Default Defaulting on your personal loan occurs when you fail to make the payments on your debt within a designated time period. Defaults will damage your credit rating.
Fixed interest rate Fixed interest rates are interest rates that are locked in for a certain period of time, usually between one and five years.
Fees Personal loans usually come with a range of fees that are charged upfront, monthly or annually over the life of the loan.
Redraw A redraw facility allows loan holders to access extra repayments made into their loan.
Upfront Fees Fees charged to process your personal loan application.
Variable interest rate Variable home loans are defined by the potential for interest rate fluctuations. The variable interest rate may be changed regularly by a lender and is usually dictated by the Reserve Bank of Australia’s (RBA) official cash rate and changes in market interest rates. Due to interest rate fluctuations, your monthly repayments could vary from month to month.