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Unsecured personal loans in Australia
If you’re looking for a loan in Australia for anything other than a home or a vehicle, chances are what you’re getting is an unsecured personal loan.
It’s a very broad category, meaning it can be hard to narrow down your options. But if you look beyond the lenders’ flashy marketing, an unsecured personal loan is a fairly straightforward product.
There are just a handful of really key factors to pay attention to when comparing them. We'll take you through them in this guide.
What is an unsecured personal loan?
An unsecured personal loan is a fixed-term loan that does not have any security attached to it. Because there’s no need for a specific asset to be used as security, an unsecured personal loan can be used to pay for almost anything.
That’s unlike a secured personal loan (e.g. a car loan). If a loan is secured, the lender can reclaim an asset belonging to the borrower if they can’t repay the loan.
According to Money's personal loan data, the most common purposes for an unsecured personal loan include:
- Consolidating debt (57%)
- Doing a home renovation (14%)
- Paying for travel (5%).
Why are unsecured loans more expensive than secured loans?
The cost of a most loans is based on risk. The higher the risk of lending money, the more a lender will charge.
An unsecured personal loan is riskier for a lender. Because there’s no security (aka ‘collateral’) for the lender to reclaim if you default on the loan.
But it’s still possible to find low interest rates on unsecured personal loans. Finding a low rate means a lower regular repayment and less to pay in total when you calculate the overall cost of the personal loan.
How to compare unsecured personal loans in Australia
To find the best unsecured personal loan for you, I generally suggest basing your comparison on four key factors.
The interest rate
Look for the lowest interest rate you’re eligible for. And remember, the lender will set your interest rate based on risk. Your credit score is a big factor here. The overall average interest rate on an unsecured personal loan in Australia is 13.87% p.a., according to Money data. But borrowers in the top credit score bracket (853-1,200) pay 9.79% p.a. on average.
Fees
Unsecured personal loans can come with application fees, annual or monthly fees and fees if you make extra repayments or repay the loan early. Fore example, the average monthly fee on personal loans is $5. That doesn't sound like much but it adds to to $300 over a five-year loan term. There are plenty of unsecured personal loan options with $0 in fees.
Comparison rate
The personal loan comparison rate combines the interest rate with most loan fees. It’s designed to give a closer reflection of the total annual cost of the unsecured loan.
Loan term
This is simply how long you have to repay the loan. A shorter term will save you money overall, but the regular repayments will be higher. Most borrowers request a five-year term, our analysis shows.
How much money can you borrow with an unsecured personal loan?
You can borrow from $1,000 up to $50,000 with an unsecured personal loan.
Our data shows the average unsecured personal loan amount requested is $22,643.
But remember, how much you can borrow will come down to your circumstances. The lender will consider your credit score, income and expenses when deciding how much it will lend to you.
How to qualify and apply for an unsecured personal loan
So, who can get an unsecured loan? Well, the basic requirements are that you’re:
- Over the age of 18
- An Australian citizen or permanent resident
- Employed or have a regular source of income
- Able to afford the loan based on your other expenses
Then, to get an unsecured personal loan you will need to:
- Submit a loan application to a lender
- Provide supporting documents like payslips, bank statements and evidence of your other debts and assets
- Sign a loan contract and agree to the terms of the loan
- If you don't have access to documents like payslips, a low doc personal loan might be more suitable.
Fixed versus variable rate unsecured personal loan
It’s generally more common to have the choice of a fixed or variable interest rate on an unsecured personal loan (secured car loans are usually fixed).
When deciding which is best for you, the main factor is how much you value certainty.
Fixed rate unsecured personal loan
Your interest rate and repayments will not change during the loan. That means you won’t benefit if rates decrease, but you won’t need to pay more if rates go up. You may not have as much flexibility to make extra repayments on a fixed rate loan.
Variable rate unsecured personal loan
Your interest rate and repayments could go up or down. You’ll benefit if rates go down, but your costs will increase if rates go up. You’ll usually have more flexibility to repay the loan early.
Is an unsecured personal loan a good idea?
Like any loan you need to weigh up the pros and cons of taking it out. Ultimately, the big question to ask yourself is can you comfortably afford the repayments? Both now and in the future.
You can also consider some of the other pros and cons. I’ve summarised these below.
Pros and cons of an unsecured personal loan
Pros
- Can be used for most purposes
- You don’t need to provide security
- Straightforward application process
- Flexible repayments (weekly, fortnightly, monthly)
- Usually there is an option to repay the loan early if you can afford extra repayments
Cons
- Higher interest rates than secured loans
- Lower loan amounts available
- The loan term may be shorter than a secured personal loan
- Rates can be quite high for bad credit personal loans
- Some lenders charge a fee if you repay the loan early
How we help you find the best personal loan
1. Let us know who you are and what you're looking for
A little bit of information goes a long way in helping us find the right loans for you.
2. We securely analyse your data against each lender
This process finds the best loan offers that match your profile.
3. Get matched
You'll see qualified personal loan offers showing your estimated repayments.
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