Unsecured Personal Loans

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What is an unsecured personal loan?

Unsecured personal loans are finance products that do not require security or collateral to qualify for approval. They are different from secured personal loans in that they do not require an existing asset for security, such as a car or property.

Usually, unsecured personal loans are repaid with interest over a period of one to seven years and can be used for anything, within reason:

  • Financing a car purchase or a holiday 
  • Consolidating debt 
  • Renovating a property 
  • Covering unexpected personal expenses 
  • Almost any personal cost or expense 

Who uses unsecured personal loans

Who uses unsecured personal loans?

Compared to secured personal loans, unsecured loans generally have:

  • Higher interest rates 
  • Shorter loan terms 
  • Lower maximum loan limits  

The more restrictive features are due to lenders viewing these loans as higher risk. Despite those drawbacks, there are a few reasons why you may opt for an unsecured personal loan:

  • You don’t have any assets that the bank will accept as security
  • You don’t want to risk using your assets as security
  • You want to purchase an asset that your lender won’t accept as security 

With an unsecured loan, you can borrow money even if you don’t have a car or property to use as security. Plus, your assets won’t be at risk of being repossessed by your lender immediately if you default on payments.


Where to apply for an unsecured personal loan

Where to apply

You may be able to secure a personal loan if you are:

  • Over the age of 18 
  • An Australian citizen or permanent resident 
  • Employed or have a regular source of income that meets minimum requirements 

You can apply for a personal loan with:

  • Banks 
  • Non-bank lenders 
  • Personal finance brokers 
  • A credit union or mutual bank 
  • Specialist lenders or online lenders 

Depending on the lender you choose, you may be able to apply for a loan over the phone, online or in person. As a general rule, online lenders offer quicker approval, while non-bank lenders that specialise in personal loans often have more-relaxed credit policies.

If you are self-employed, you may wish to consider a low-doc personal loan application.

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Consider other lenders as well as banks when securing a personal loan, as they may often faster approval or less-strict credit policies.


How to qualify for an unsecured personal loan

How to get an unsecured personal loan

If you meet basic eligibility criteria for an unsecured personal loan and you’re ready to apply, you’ll need to take some time to compare loan products and find the lender and loan most suitable for your personal circumstances. 

Once you’ve compared loans and you’re ready to apply, you can apply in three simple steps:

  • Submitting an application to a lender 
  • Meeting the lender’s approval criteria 
  •  Signing a loan contract  

It’s important that when applying you can prove to the lender that you’re able to meet loan repayments. This is called loan serviceability, and it’s one of the main factors lenders consider when assessing your application. 

To ensure your application is processed quickly, prepare supporting documents before applying, including:

  • Proof of identity - e.g. passport or driver licence 
  • Proof of income - e.g. payslips, bank statements 
  • Details of any current debts or liabilities 

Once you’ve submitted your application, your lender may come back to request more supporting documentation or detail on your finances. If you’re approved, you will receive a loan contract to review and accept.


How to compare unsecured personal loans

How to compare unsecured personal loans

When comparing unsecured personal loans consider the following loan features:

  • Loan minimum and maximum amount 
  • Loan term 
  • Loan fees 
  • Interest rates 
  • Loan features 

Amounts

Usually, banks and other traditional lenders will lend a minimum of $2,000 and a maximum of $50,000 to $70,000 for unsecured personal loans.

  • If you want to borrow more than this amount, you may need to apply for a secured loan as these usually have higher loan limits. 
  • If you want to borrow less than $2,000 you may need to apply with a short-term, non-bank lender. These lenders often have higher interest rates and shorter loan terms.  

Use the Personal Loan Calculator to estimate repayments on various loan amounts.


Unsecured personal loan terms

Terms

Unsecured personal loans are usually offered with loan terms of between one and seven years. Shorter loan terms are available with specialist short term lenders, and longer loan terms are available with secured personal loans.

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A shorter loan term may mean higher repayments, but you’ll pay less interest over the life of the loan.

Fees and Charges

Loan fees are one of the main costs of borrowing money so you should fully understand them before you apply. There are four types of fees to consider:

  • Upfront: Loan establishment and application fees. 
  • Ongoing: Annual and monthly account fees. 
  • Late payment fees: Charges if you miss a payment. 
  • Extra repayment fees: Charged if you make extra repayments, or if you pay the loan off early. 

To get a clear understanding of the fees charged, you can either check the loan’s product disclosure statement (which must be supplied by the lender) or check the comparison rate.

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The comparison rate must be advertised alongside the interest rate, and describes the true cost of the loan (Interest plus fees).

Features

Unsecured personal loans have a number of useful features that may be convenient for certain borrowers, or make it easier to repay a loan amount. These include:

  • Online application: a quick, easy online application - no branch visit required. Available with most lenders. 
  • Redraw facility: a feature that allows you to withdraw any extra repayments you’ve made. May come with extra fees. 
  • Repayment flexibility: the choice to make repayments weekly, fortnightly or monthly to suit your lifestyle or pay cycle. 
  • Extra repayments: the ability to make extra repayments or pay your loan off early without incurring fees.

Comparing features, fees, and other aspects of a personal loan are key aspects when choosing to:


Unsecured personal loan summary

Summary

An unsecured personal loan can be a great way to access finance when it’s required, but there are a few things to know before applying. 

You don’t need to provide an asset - like a car or property - as security with an unsecured personal loan. If you don’t have assets that lenders will accept as security, or you don’t want to risk your assets, unsecured finance is an available option. 

However, unsecured personal loans are considered higher risk by lenders, which means that they often have:

  • Lower loan limits 
  • Shorter loan terms 
  • Higher interest rates 

Before applying for a personal loan it’s a good idea to shop around and compare the fees, loan terms, interest rates and features of several lenders. Once you’ve chosen a suitable option and prepared your documentation you can usually apply online or by contacting the lender directly.

Unsecured Personal Loan Pros and Cons

Pros Cons
  • No security required 
  • Easy online application with most lenders 
  • Ideal for smaller loans under $5,000 
  • Lower interest rate than credit cars 
  • Higher interest rate than secured personal loans 
  • Lower loan limits than secured personal loans 
  • Shorter loan terms than secured personal loans 
  • Getting approval can be difficult, particularly if you have bad credit 

Unsecured Personal Loan FAQ

How much can I borrow with an unsecured personal loan


The amount you can borrow with an unsecured personal loan will depend on the lender you apply with and your circumstances. Usually, lenders have loan minimums of $2,000 and maximum amounts between $50,000 and $75,000.

Can I buy a car with an unsecured personal loan?


Yes, you can buy whatever you want with an unsecured personal loan within reason. However, specific car loan products may have lower interest rates and be better suited to financing a car purchase.

Can I get an unsecured personal loan if I have bad credit?


You may be able to get an unsecured personal loan if you have bad credit. However, lenders consider unsecured loans riskier so they may be more strict when assessing your ability to repay the loan.

Do banks offer unsecured personal loans?


Yes, most banks offer unsecured personal loans, including the big four - Commbank, Westpac, NAB and ANZ. However, you should not go with a bank by default - non-bank lenders, credit unions and brokers may be able to get you a lower interest rate and a better deal.