Debt consolidation
Combining eligible personal debts into one loan and repayment.
Specialist Finance
Personal Loans
A personal loan can provide a defined amount of finance for a specific purpose, with repayments made over an agreed term. The right loan depends on the amount required, purpose, repayment capacity, fees and overall cost.
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What is a personal loan?
A personal loan is generally a fixed amount of money borrowed for a defined personal purpose and repaid over an agreed period.
Unlike a home loan, a personal loan is usually not secured against residential property, although some forms of lending may be secured against another asset.
Personal loans can be useful where the amount required is larger than can comfortably be paid from savings but does not justify restructuring a home loan or other longer-term lending.
What can a personal loan be used for?
The acceptable purpose depends on the lender, but personal loans may be used for a range of legitimate personal expenses.
Home improvements
Funding smaller renovations, repairs or household improvements.
Major purchases
Financing furniture, appliances or other significant personal purchases.
Medical or dental costs
Funding eligible treatment or health-related expenses.
Travel
Some lenders may allow personal borrowing for travel or major planned expenses.
Other approved purposes
A lender may consider other legitimate personal purposes depending on its credit policy.
How much can you borrow?
The amount available depends on income, living expenses, existing debts, credit limits, employment, credit history and lender policy.
A lender will generally assess whether the proposed repayment is affordable alongside your existing commitments.
The maximum amount a lender may approve is not necessarily the amount that is appropriate for your own budget.
What affects personal loan borrowing capacity?
Lenders usually consider the complete financial position.
Income
Salary, wages and other acceptable income help determine repayment capacity.
Living expenses
Regular household and lifestyle expenses form part of the lender's assessment.
Existing debt
Home loans, car finance, personal loans and other commitments can reduce borrowing capacity.
Credit card limits
Credit card limits may affect servicing even where the cards are not fully used.
Credit history
Previous repayment conduct and credit enquiries may form part of the assessment.
Employment stability
The lender may consider the type and stability of income when reviewing the application.
Secured or unsecured personal loan?
Many personal loans are unsecured, meaning the borrower does not provide a specific asset as security.
Some lenders also offer secured personal lending where an acceptable asset supports the loan. Secured lending can sometimes provide different pricing or loan limits, but the asset may be at risk if the loan obligations are not met.
The right structure depends on the purpose, amount and available security.
How secured and unsecured loans can differ
The structure can affect rate, loan amount and lender requirements.
Interest rate
Secured lending may sometimes have lower pricing because the lender holds security.
Loan amount
The maximum amount available can vary between secured and unsecured products.
Loan term
Available terms depend on the lender and product.
Application requirements
A secured loan may require additional information about the asset being offered as security.
Risk to the asset
If an asset secures the loan, it may be at risk if repayments are not maintained.
Fixed or variable interest rate?
Personal loans may be offered with fixed or variable interest rates depending on the lender.
A fixed-rate loan generally provides predictable repayments for the agreed term. A variable-rate loan can change if the lender changes the applicable rate.
The comparison should include not only the rate but also fees, repayment flexibility and early repayment conditions.
Loan term matters
Personal loans are usually repaid over a shorter term than home loans.
A longer term can reduce the required repayment, but it also means interest is charged for longer and can increase the total cost.
A shorter term generally increases the repayment but may reduce the total interest paid.
What should be compared between personal loans?
The headline interest rate is only one part of the comparison.
Interest rate
Consider whether the rate is fixed or variable and how it affects repayments.
Comparison rate
Where available, the comparison rate can help illustrate the impact of certain fees and charges.
Establishment fees
Application or establishment fees can materially affect smaller loan amounts.
Ongoing fees
Some products may include monthly or annual account fees.
Early repayment conditions
Check whether additional repayments or early payout attract fees or restrictions.
Loan term
A longer term can reduce repayments while increasing total interest.
Debt consolidation with a personal loan
A personal loan may sometimes be used to consolidate several unsecured debts into one repayment.
This can make the debts easier to manage and may improve the overall interest cost where the new loan is cheaper than the existing debts.
However, consolidation only improves the position if the total cost, loan term and repayment behaviour are considered carefully.
Things to check before consolidating debt
A lower repayment does not automatically mean a better outcome.
Existing interest rates
Compare the rates and costs of the debts being repaid.
New loan term
Extending debt over a longer period can increase total interest.
Existing payout costs
Some existing loans may have early payout or administration fees.
New establishment fees
The cost of establishing the new loan should be included in the comparison.
Credit card limits
If credit cards are consolidated but left open with large limits, they may continue to affect borrowing capacity and future debt risk.
Personal loan or home loan?
Where a borrower owns property, it can be tempting to add a relatively small personal expense to a home loan because the interest rate may be lower.
However, stretching a short-term expense over a long mortgage term can result in interest being paid for many years.
The appropriate choice depends on the amount, purpose, available equity, fees and how quickly the debt will realistically be repaid.
What documents may be required?
Requirements vary depending on the lender and borrower.
Identification
Standard identity verification is generally required.
Income evidence
Payslips, employment information or other acceptable income evidence may be required.
Bank statements
Some lenders may review transaction or salary-credit statements.
Existing liabilities
Information about current debts, credit cards and repayments may be required.
Purpose evidence
Depending on the loan purpose, quotes, invoices or other supporting documents may be requested.
Self-employed information
Business owners may need to provide different income evidence depending on lender policy.
Credit history and loan applications
A lender may review your credit report as part of a personal loan application.
Existing debts, repayment history, credit enquiries and any adverse credit information can affect the lender's decision and pricing.
Submitting several applications to different lenders in a short period can also create multiple credit enquiries, so it can be useful to assess likely options before making formal applications.
Why lender selection matters
Personal-loan lenders can have different credit policies and pricing models.
Income policy
Lenders may treat casual, overtime, commission and self-employed income differently.
Credit profile
Pricing and approval can vary depending on the borrower's credit history.
Loan purpose
Not every lender accepts every personal-loan purpose.
Loan amount
Minimum and maximum loan sizes vary.
Loan term
Available repayment periods can differ between lenders.
Fees and early repayment
Establishment, ongoing and early payout costs can materially affect the overall result.
How I compare personal loans
My role as a mortgage and finance broker is to look at the purpose of the finance, the amount required and your broader financial position before comparing available options.
That means considering the rate, establishment and ongoing fees, loan term, repayment amount and total expected cost.
The aim is to find a structure that meets the immediate purpose without creating unnecessary long-term debt.
A typical personal loan journey
A straightforward personal loan can often move relatively quickly once the required information is available.
- 1
Confirm the amount and purpose
Determine how much is required and what the loan will be used for.
- 2
Review your financial position
Assess income, expenses, existing debts and repayment capacity.
- 3
Compare suitable lenders
Review rates, fees, terms and lender policy.
- 4
Prepare the application
Provide identification, income information and any required supporting documents.
- 5
Credit assessment
The lender reviews the application and may request additional information.
- 6
Approval
Review the approved amount, rate, term, fees and repayment.
- 7
Funding
Once loan documents are completed, approved funds can be released.
Personal loan questions
What can I use a personal loan for?
Depending on the lender, personal loans may be used for debt consolidation, home improvements, major purchases, medical expenses, travel and other approved personal purposes.
How much can I borrow with a personal loan?
The amount depends on income, expenses, existing debts, credit limits, credit history and lender policy.
Do I need security for a personal loan?
Not necessarily. Many personal loans are unsecured, although secured options may also be available.
Are personal loan rates fixed?
Some personal loans have fixed rates while others may have variable rates. Product structure varies between lenders.
How long can a personal loan run for?
Loan terms vary by lender and product, but they are generally shorter than home-loan terms.
Can I pay a personal loan off early?
Usually, although early repayment or administration fees may apply depending on the lender.
Can I consolidate credit cards with a personal loan?
Potentially. The overall benefit depends on the new interest rate, fees, loan term and whether existing credit limits are reduced or closed.
Is a personal loan better than adding debt to my mortgage?
It depends on the purpose and repayment strategy. A mortgage may have a lower rate, but stretching short-term debt over a much longer term can increase total interest.
Does applying for a personal loan affect my credit report?
A formal credit application may create an enquiry on your credit report. Lenders also consider existing credit history and repayment conduct.
Can self-employed people get personal loans?
Potentially. Income evidence requirements can differ from standard PAYG applications and vary between lenders.