There are times in life when you need to spend money on something important, but you simply don't have the cash in hand. This is where personal loans come in to help you to achieve your goals, whether this is a new car, a new kitchen, a wedding, or even consolidating old debts to make life easier.
There are countless loan products available to borrowers today, each designed to meet different financial needs. Understanding how each works can help you find out which type of personal loan is best suited to your goals and circumstances.
To compare a range of personal loans and to get a feel for the different types out there, consult the table below.
| Lender | Car Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Interest Type | Secured Type | Early Exit Fee | Ongoing Fee | Upfront Fee | Total Repayment | Early Repayment | Instant Approval | Online Application | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.76% p.a. | 5.76% p.a. | $384 | Fixed | Unsecured | $0 | $0 | $275 | $23,066 |
| Promoted | Disclosure | ||||||||
6.28% p.a. | 6.28% p.a. | $389 | Fixed | Unsecured | $0 | $0 | $0 | $23,356 |
| Promoted | Disclosure | ||||||||
5.95% p.a. | 5.95% p.a. | $386 | Fixed | Unsecured | $0 | $0 | $0 | $23,171 |
| Promoted | Disclosure |
Different types of personal loans
Secured personal loans vs Unsecured personal loans
Personal loans can generally fall into two categories: secured and unsecured. The key difference lies in collateral.
When you take out a secured personal loan, you put up an asset as security against some or all of the amount. You can offer up a vehicle, some of the equity in your property, a term deposit balance or even jewellery.
If you fail to keep up with your payments, the lender can take possession of these assets to recoup the debt. This gives the lender more confidence in the loan, so you'll typically have a lower interest rate on the amount as a result.
On the other hand, an unsecured loan doesn't require you to pledge an asset as security. If you don't have much in the way of assets, or you’re not purchasing a car, this could be an option. You'll need to convince the lender that you can repay the amount, though by showing payslips and expenditure, as well as by having a good to excellent credit rating.
The table below outlines the key benefits and drawbacks of each loan type.
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Type |
Pros |
Cons |
|---|---|---|
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Secured Personal Loan |
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Unsecured Personal Loan |
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Fixed-rate personal loans vs variable-rate personal loans
When comparing personal loans, one key decision is how you want your interest rate structured.
A fixed-rate loan locks in the same rate and payment for the life of the loan, providing stability and predictability. You'll know exactly what you'll be paying each month, which can make life much easier, as the rate doesn't change over the repayment term.
A variable-rate loan, however, tends to fluctuate with market conditions, sometimes offering lower initial costs but exposing borrowers to potential rate increases.
The right choice often depends on your budget, timeline, and appetite for risk. The table below summarises the advantages and disadvantages of both types of loans.
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Type |
Pros |
Cons |
|---|---|---|
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Fixed-Rate Personal Loan |
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Variable-Rate Personal Loan |
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Specialised personal loans
Specialised personal loans are designed for borrowers with specific financial goals, offering funding tailored to particular needs rather than general-purpose use. These loans often come with features and terms optimised for their intended purpose.
Debt consolidation loans
Debt consolidation loans are great for helping people to take control of their debts, even if they're not problematic. You bundle all your existing debts, whether they're loans, overdrafts or credit card balances under one umbrella debt, with one interest rate. The new interest rate should be low enough to make your single monthly payment lower than the sum of your old, separate payments. Be aware that you are, in effect, taking out yet another loan product with the intent of wiping out your other loans.
Car (motor vehicle) loans
A car loan is a secured loan in which the asset is the vehicle itself. You automatically pledge the vehicle as security against your loan amount. Car loan interest rates are typically more attractive than other types and can be a sound option for buying a new or used vehicle.
Green loans
Green loans are personal or business loans specifically aimed at funding environmentally friendly projects, from energy-efficient home upgrades to sustainable transportation. Often with lower interest rates, they allow borrowers to invest in greener choices while managing costs responsibly.
Small business loans
An entirely different set of products, small business loans can operate like regular loans, except you can be exempt from GST on a vehicle purchase and claim loan expenses back on tax. Other forms of business loans include chattel mortgages for purchasing equipment and hire purchase agreements.
How long should loan terms be?
Most loans available in Australia have terms ranging from one to five years, with some repayment periods lasting up to seven or even 10 years. Three to five years is the average term, although yours will depend on how much you're borrowing and how quickly you can pay it back without either depriving yourself or paying too much in interest. The longer the term, the more you'll pay in interest (generally) simply because the balance exists for longer.
You need to find your optimal loan amount and repayment term combination by experimenting with a loan calculator. Always look at how much interest you'll ultimately pay, because for many people, the temptation is to make small repayments for longer. This can be a false economy, though.
What to look for in a personal loan
When applying for a personal loan, the details matter. Comparing core features across lenders helps you make an informed choice and avoid costly pitfalls.
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Low or no fees - Look for loans with minimal fees, including establishment, ongoing maintenance, and early repayment fees, to keep costs down.
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Flexible repayments - Loans that allow occasional overpayments without heavy penalties let you pay off your debt faster and reduce overall interest.
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Redraw facility - Some loans let you withdraw extra repayments you’ve made, providing a safety net for unexpected expenses.
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Transparent interest rates - Check whether the loan offers a fixed or variable rate and understand how it affects your monthly payments and total interest. Be aware that many car dealership loans do not display the interest rate, which is a red flag.
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Loan term options - Choose a repayment period that balances manageable monthly payments with the total cost of the loan.
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Repayment frequency - Weekly, fortnightly, or monthly repayments can help align your loan with your cash flow and budgeting habits.
