What Is A Personal Loan?

A personal loan is a flexible financial product offered by banks and other financial institutions that allows each person to borrow a specific amount of money for various personal needs.

Unlike secured loans, personal loans do not require any collateral, meaning you don’t need to pledge assets like your house or car.
The amount you can borrow, the interest rate, and the repayment terms are determined based on your credit history, income, and other financial factors.

This type of loan can be used for a wide range of purposes, from consolidating debt to funding home improvements, medical expenses, or even vacations.

How Do Personal Loans Work?

Personal loans can be a flexible financial tool, but it’s important to understand the terms and ensure that the monthly payments fit within your budget.

Fixed Loan Amount

Borrowers can usually choose a loan amount within a specified range, depending on the lender’s terms and the borrower’s creditworthiness.

Interest Rates

Interest rates can be fixed or variable. Fixed rates remain the same throughout the loan term, while variable rates can change based on market conditions.

Repayment Terms

Repayment terms typically range from one to seven years. Borrowers make regular payments (monthly, fortnightly, or weekly) that cover both the principal amount and interest.

No Collateral Required

As unsecured loans, personal loans do not require the borrower to provide collateral. This makes them accessible to individuals who may not have valuable assets to pledge.

Usage Flexibility

Personal loans can be used for a variety of purposes, including consolidating debt, funding home renovations, covering medical expenses, financing weddings, or even taking vacations.

Why Personal Loans are Beneficial

Personal loans have many benefits, especially for debt consolidation. Here’s an easy example to understand:

Imagine you have several credit cards with high-interest rates and different payment schedules. Managing all these payments can be stressful and expensive. By getting a personal loan with a lower, fixed interest rate, you can combine all your credit card debts into one loan.

This means you’ll have just one monthly payment to make, which is easier to manage and often cheaper.

For example, consolidating your credit card debts into a single personal loan can significantly lower the amount of interest you pay and make your monthly payments more straightforward.

This shows how personal loans can help you manage your finances better and save money.

When to Consider a Personal Loan

Consider a personal loan when you need to finance a large expense such as home renovations, medical bills, or a major purchase, and you lack sufficient savings.

Personal loans are also beneficial for debt consolidation, allowing you to combine high-interest debts into a single loan with a lower interest rate and fixed monthly payments.

This can simplify your finances and reduce overall interest costs.

Additionally, personal loans can be a good option if you require quick access to funds, as they typically have a faster approval process compared to other types of loans

Moreover, by responsibly repaying a personal loan on time, you can also improve their credit score, making debt consolidation an attractive option for refinancing high-interest loans or credit cards and diversifying your credit profile.

Moreover, by responsibly repaying a personal loan on time, individuals can also improve their credit score, making debt consolidation an attractive option for refinancing high-interest loans or credit cards and diversifying their credit profile.

Eligibility Criteria

Credit Score
  • A higher credit score increases your chances of approval.
  • Can lead to better loan terms, such as lower interest rates.
Income and Employment Require proof of income to ensure that you have the means to repay the loan.
Debt-to-Income Ratio (DTI)
  • Measures your monthly debt payments against your income.
  • A lower DTI (generally below 40%) indicates a good balance between debt and income.
Age and Residency A minimum age requirement (often 18 or 21).
Bank Account Necessary for loan approval and the subsequent transfer of funds.
Credit History
  • Lenders will look at your past financial behaviour to assess risk.
  • A history of managing credit responsibly can be beneficial.
Collateral (for secured loans) Some loans require collateral, especially if your credit is not strong.

Ready To Apply For A Personal Loan?

Facing high interest rates can be intimidating, but with careful preparation, you can approach the process with confidence. Ensure you have a clear purpose for the funds, a stable income for repayments, a good credit score for favourable terms, and a solid understanding of your financial capacity to manage the additional debt responsibly.

Personal Loan Additional Information Disclosure

Minimum and Maximum period for repayment
  • The minimum repayment time period is ONE year.
  • The maximum reopyment time period is SEVEN years.
Annual Percentage Rate (APR): The annual percentage rate is 6.99 to 35.99%. This includes interest rates + fees + costs.
Maximum Annual Percentage Rate (APR):
  • Maximum Annual Percentage Rate (APR): The maximum annual percentage rate is 35.99%. This includes interest rates + fees + costs.
Real-life example of the total cost of a loan AUD Account Summary