5 questions to ask a personal loan provider before you borrow money

Taking out a personal loan may seem like a simple thing to do, however there’s a great deal to consider beyond how much you’re going to borrow from your bank or loan provider.

Considerations should include interest rate, loan term, payment schedule, affordability, the reputation of the organisation you are considering borrowing from and whether you are looking at a secured or unsecured loan.

We will unpack all of that shortly, but firstly, let’s discuss what a personal loan actually is.

What is a personal loan?

A personal loan is a loan that allows you to borrow a fixed amount of money that you repay over a fixed term, usually between one and five years.

They can be used for a whole range of things including a holiday, new car, renovations or home improvements and even to pay the $20,000 to $50,000 it now costs to host a wedding.

A personal loan may also be used to consolidate your debts, including other loans and credit cards, into a single place.

The advantage is that you make one easy to manage repayment at a lower rate of interest than your credit card.

The amount you can borrow varies between banks, so this will determine which provider you go with depending on your needs. For instance, Society One offers personal loans from $5000 to $50,000 and ING has personal loans starting at $5000 to a $30,000 limit. Westpac has a minimum unsecured loan of $4000 and a maximum limit of $50,000.

There are two types of personal loans: standard unsecured loans and secured loans, which offer less risk but could come at a greater cost.

What is an unsecured loan?

An unsecured loan is a loan that is not backed by any security or asset such as your home or car.

Unsecured loans are the most common type of loan and are great for those who don’t want to (or can’t dip into their savings), however as they carry more risk for the bank, you will find that interest rates are higher than with secured loans.

The amount you pay back (on unsecured and secured loans) will depend on how much you borrow and the length of your loan.

Advantages include:

  • Fixed monthly payment that make budgeting easier;
  • Fixed term locked in at the borrower’s discretion;
  • Lower interest rate than a credit card;
  • Debt consolidation allows you to put all your debt into one loan, under one interest rate;
  • Cooling off period.

Disadvantages are:

  • Higher interest rates may apply for smaller loan amounts;
  • Payment terms are inflexible: you need to make your payment by the agreed upon date;
  • There could be serious consequences for missing payments including late fees. Your credit rating may also be affected. A bad credit rating could make it difficult to access future financial products;
  • Early payment fees may apply.

What is a secured loan?

A secured loan is backed by an asset such as your car or home.

There are intrinsic dangers in taking out a secured loan, not least that if you default on the debt, the lender may take possession of the secured asset and sell it in order to recoup their money.

Risky business.

As the loan is secured, you can generally borrow more, usually at a lower interest rate, however interest rates may be variable.

Secured loans are really only worth considering if you understand the risks and are confident you can pay back the debt.

Why you should research your provider

Once you have determined what loan best suits your needs, it’s time to find a provider. However, with the amount of choice available, this can be difficult.

Once you have determined what loan best suits your needs, it’s time to find a provider. However, with the amount of choice available, this can be difficult.

Sites such as InfoChoice, can help with the decision making process by allowing you to compare multiple loan products.

You can compare by interest rate, comparison rate or by monthly repayment.

You will finds that rates do vary greatly between providers, so you’ll have to choose one that best suits your needs.

Within your discovery phase, are several questions you should ask of your potential loan provider.

Top 5 questions to ask your loan provider

1. What is the personal loan interest rate?

Personal loan rates vary from lender to lender and are often based on your credit profile. Comparison rates are an important indicator of associated overall costs of the loan.

2. Is the interest rate fixed or variable?

A fixed rate personal loan means the rate won’t change over the term of the loan. A variable interest rate, could see the rate change at any time.

3. If I make extra payments and pay the loan off early, will I be charged?

Extra payments are generally allowed, however there may be a penalty for paying the loan off early.

4. What is the frequency or payments?

Can I pay fortnightly or monthly? If I pay fortnightly will that draw down the debt quicker.

5. What other fees are there attached to my loan?

Is there a monthly account-keeping fee or administration fee? Is there a late repayment fee?


This update is not financial advice. This article is general news and information.

Home Loans: The comparison rates are based on a secured loan amount of $150,000 and a term of 25 years.

Personal Loans: 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.

The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements

InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.

The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.