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What is a personal loan?

A personal loan is a type of loan that is counted as a major loan type. What generally separates a personal loan from other loan types is that personal loans can be used for any express purpose with almost little to no restrictions.

Personal loans hold the position of being the most versatile loan type because of their flexibility with regards to loan terms and structure, such as repayment terms and rates (which, of course, is subject to the lender as always).

Personal loan types

Within the personal loan category, there are a few loan products with different names. For example, debt consolidation, balance transfer and line of credit are all personal loan products packaged under a different name to cater to customers with a specific need. The basic characteristic of a personal loan is that it is pretty flexible in terms of what it can be used for, meaning that you can decide yourself how much you would want to use as credit and how much you want to use to pay off old dept. Other typical characteristics for a personal loan are:

Unsecured (or secured)

In Australia, personal loans can be either secured or unsecured.

Depending on how much you are looking to borrow, it is typical for borrowers to offer security before getting authorised for a large personal loan. With the provision of collateral, you will naturally be able to pay less for your monthly repayments given that banks will have some sort of security to count on in the event that you can not make your repayments.

What is important to know, however, is that most people are taking up personal loans of an unsecured nature where there is no collateral involved. This is one of the advantages with this loan type; there is no need for a security to be placed on the behalf of the borrower and the funds are easier to access.

Personal loan interest rates

Fixed-rate vs variable loan rate

Personal loans can come in two different rate types: You can get a fixed-rate loan and a variable rate loan. Depending on the lender’s availability and assessment of your repayment ability, you might be offered either one of these types, or both.

In a fixed interest rate personal loan plan, you will not have to worry about how much to pay each month as the amount will remain the same throughout your loan term. In contrast, if you choose for a variable-rate loan, you will need to stay alert to any changes in interest rates so that you may adjust your monthly payments accordingly.

A tip is that you should decide on which personal loan rate to pick based on how flexible you want to make your repayments. If you intend to repay your loan sooner, it is recommended that you obtain a variable interest rate loan, as these loan agreements typically do not charge early repayment fees.

What can personal loans be used for?

Personal loans can be used for any express purpose with almost little to no restrictions. You can use it for reasons such as to fund a big ticket purchase, a wedding, a new car, or even an overseas trip. Some use personal loans for the purpose of private investment or education, which is also allowed.

Though, here are some exemptions for what a personal loan can be used for:

• Illegal activities

• Housing down-payments

• Home loan deposits

For the above, excluding for illegal use, it might be appropriate to look into other loan types that are structured for these purposes; if you do, you might get a better loan deal than what you would with a personal loan.

To be absolutely sure of what you can and can not use your personal loan for, it does not hurt to double-check with your lender and review your loan terms.

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Personal loan terms and disbursement

How much can I borrow?

Many banks and lenders in Australia set the maximum borrowing limit at $50,000. Though, some allow up to $60,000.

However, the actual amount one can borrow will vary from person to person depending on the individual circumstances and credit rating, as well as whether the personal loan that is being undertaken is a secured or an unsecured one. This, because creditors must ensure that their borrowers can pay off the entire amount of what they owe.

How long can I borrow for?

Borrowers are generally permitted to allow a loan tenure ranging from 1 year to 7 years, which is determined based on your loan type (secured or unsecured), loan amount, tenure, repayment frequency (weekly, fortnightly, or monthly), credit rating etc.

However, most of the time, the loan duration is up to you, and you may also be able to pay it off as quickly as you want, especially if you take up a loan that allows early repayment without penalty fees.

When do I get the money?

Personal loan disbursement occurs when money is deposited directly into your bank account from your lender or when the personal loan cheque is processed into your bank account. This process, also known as a drawdown, typically marks the official start of your personal loan term, with interest beginning to accrue from the time of drawdown.

If you take a loan from a lender that you already have a relationship with, you can complete the process and get access to your personal loan funds in as little as an hour.

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How to get the best personal loan in Australia?

Given that personal loans are one of the most versatile and broad loan products available in the market, it is always a good idea to compare as many personal loan offers as possible before deciding which one to go with. You should always make sure that the one you pick is matching what you are looking for, both in terms of interest rate, amount and tenure. You will never know if there was a better option out there if you do not compare, and chances are that there are offers available for you with better terms than what you are being offered from your selected bank.

But, here is the thing: Comparing loans on your own is both tedious, exhausting and sometimes confusing. Here is where Lendela comes in. We simplify the loan application and comparison process in to one flow, where you get access to multiple tailored loan offers from various lenders via just one single application. Once you have applied with Lendela, we scan the market for your best loan options and all you have to do is compare and select. Free of charge and without any obligations.

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