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What is an Australian personal loan?

Australian banks and lenders offer personal loans to borrowers for a wide range of purposes. Whether you’re planning a wedding, dreaming of a holiday or looking to consolidate debt, a personal loan could allow you to access the money when you need it and pay it back over time. Learn about how personal loans work in Australia, who is eligible and how the Australian credit reporting system might affect you.  

How do Australian personal loans work? 

Taking out a personal loan in Australia works by allowing you to borrow money for a specific purpose over a set period of time. Personal loans work as most loans would and there are certain criteria that you have to meet, including having income to repay the debt.  

Key components of an Australian personal loan: 

Personal loan Element  About
Loan amount Can start from $2,000 and some go up to $100,000 depending on its purpose. Smaller loans, called payday loans, are available but carry their own risks.  
Interest rate The cost of borrowing the money which is charged as a percentage of the loan amount and applied to your regular repayments. Interest rates can be fixed or variable.  
Loan term The length of your loan, typically 12 to 60 months.  
Loan type Choose between a secured or unsecured loan.  
Repayment frequency Weekly, fortnightly or monthly.  
FeaturesSome personal loans offer features like the ability to make extra repayments, or an overdraft facility.  
FeesThis can be anything from annual or monthly fees to fees charged when making extra repayments or repaying the loan early if it’s fixed.  

What can you use personal loans for? 

There are a few reasons you could take out a personal loan, including:

  • Debt consolidation 
  • Buying a new or used car 
  • Paying for a wedding 
  • Funding a holiday 
  • Paying school fees 
  • Paying medical bills 
  • Moving house
  • Funding home renovations

Debt consolidation personal loans can be a useful debt management tool. If you have more than one debt facility such as multiple credit card, you could take out a personal loan to pay these off. You’ll then have only one debt at a lower interest rate to manage. That’s because personal loans charge lower interest rates than credit cards.

How do you compare Australian personal loans? 

There are a few ways to compare personal loans and get information, like speaking to a bank or broker. Use comparison tools, such as tables and calculators, to find loan options that suit your needs and budget and to ensure you’re getting the most competitive deal.  

  • Comparison tables help filter and narrow down personal loan options. You can compare interest rates and view features or fees attached to the loan. The RateCity personal loans marketplace was built with this in mind.
  • Calculators help you compare your loan options by showing how much a loan’s repayments may cost you depending on the amount you borrow and the interest rate. This is a great tool to use once you’ve narrowed down a few loan options to see which loan is the most affordable for you.  

How do you choose the right personal loan? 

The right personal loan for you depends on your finances and the type of loan you want. Your bank may not offer the best or cost effective loan. This is why doing your research is so important. The first thing you should do is figure out what you want from your loan. Your loan’s purpose is important because lenders may use this as a loan criteria. For example, some lenders are happy with you borrowing for a renovation, but not for a wedding.  

You then need to decide if you want a secured or unsecured loan as this will affect the cost, or the interest rate, on the loan. You also need to decide if you want a fixed or variable interest rate loan. 

Different types of personal loans

Secured vs unsecured personal loans

A secured loan has collateral as security on the loan, whereas an unsecured loan does not.  

  • Secured loans: With a secured personal loan, your financier will ask you to insure the loan using an asset that you own. This asset will be used to cover the personal loan amount if you default on your repayments.  

  • Unsecured loans: An unsecured loan is not secured by an asset, and so it represents a greater risk to your lender. With no insurance on your loan, they cannot recover their losses if you fail to meet your repayments. So lenders charge higher interest rates on unsecured personal loans in order to reduce their risk. These types of loans also come with stricter criteria, to ensure borrowers can meet their repayments. 

Fixed vs variable rate personal loans 

  • Fixed interest rate: Personal loans with fixed rates charge the same interest rate for the length of the loan. That means that you agree to pay a set amount of interest as part of the loan repayments each month. Regardless of whether your lender changes interest rates, your repayments will stay the same. This can be appealing as it keeps your expenses certain and  makes budgeting easier. However,  you could miss out on savings if your lender reduces their variable rates.
  • Variable interest rate: Personal loans with variable interest rates mean your repayments could change at any time. You could save money with a variable loan if there’s a rate cut, as your interest costs and repayments will fall. However, if your bank or lender raises their rates, your costs could rise. 

Once you know what your ideal loan is, you can begin your comparison use RateCity's personal loan repayment calculator to see what you can afford. Doing your own research is the best way to ensure you choose the right loan for your specific financial needs and budget.  

Can anyone get a Australian personal loan? 

Not everyone will be eligible for a personal loan in Australia. Eligibility criteria typically includes: 

  • Being 18 years or over 
  • Living in Australia 
  • Being an Australian citizen, permanent resident or holding an eligible visa 
  • Receiving regular income and/or being employed. Some lenders set minimum income requirements so be sure to read the fine print before applying
  • Good credit history 

If you have a poor credit score, you may find it harder to get loan approval. You also may be charged higher interest rates because you’re seen as a riskier borrower. This helps lenders cover their costs. Learn more about credit scores.

What documentation do you need for a Australian personal loan 

The number and type of documents a lender asks you for may depend on whether they have dealt with you before, your credit history and the information contained in your bank statements.

These may include:

  • Proof of identity - driver’s license, passport or Birth certificate  
  • Utility bills 
  • Proof of income such as pay slips or Centrelink benefits  
  • Bank statements 
  • Recent ATO tax notice of assessment or tax return 
  • Recent tax returns or financial statements 
  • Existing credit commitments and statements - credit card debt etc. 
  • If you’re applying for a personal loan for the purpose of purchasing a car, you might be asked to provide additional documentation relating to the car and its insurance policy.

Other factors to consider 

When deciding on a personal loan, it’s important to consider the following factors. 

  • Loan term: spreading your repayments across several years could lead to smaller weekly or monthly repayments. This will, however, increase the amount of interest you pay over time. 
  • Your credit provider: consider using ASIC’s professional register to check whether your lender is licensed. 
  • Fees: some loans will charge a range of fees. This is why comparison rates are helpful when choosing loans. A loan’s ‘comparison rate’ combines a loan's advertised interest rate with its standard fees and charges, giving you a more accurate idea of its overall cost. Just watch out for any extra fees and charges that aren’t included in the comparison rate. You should ask a lender whether any of these apply.  
  • Features: the bells and whistles will cost you. Adding features to your personal loan can increase the interest rate.  

What Australian personal loan can you afford 

Not sure what personal loan you can afford? Use our personal loan repayment calculator to see what loan amount and interest rate would suit your finances. If you're considering a variable rate personal loan and have a strict budget, it's wise to budget for a rate rise of up to 3 percentage points to ensure that you can afford repayments. 

Example of personal loan costs: 

Loan purpose Loan amount Loan term Interest rate Monthly repayments Total cost Total interest paid 
Holiday $5,000  2 years9% $228 $5,482 $482 
Debt consolidation $10,000  3 years 10%$323 $11,616 $1,616 
Wedding $15,000  4 years 11%$388 $18,609 $3,609 
Renovations $20,000  5 years 12%$445 $26,693 


Note: Loan repayments don’t include fees. 

Will my credit history affect my personal loan application? 

Your credit history is an important measuring tool for lenders in Australia to determine your loan eligibility and if you will be able to meet your repayments. Your credit report will not just show negative information, but positive too. For example, if you’ve been working to pay off your debt and improve your credit by making regular repayments on your credit card, this will be revealed.

Your credit history helps lenders to make a more informed decision about your reliability as a borrower. If you have bad credit, don’t despair. In Australia, a new and positive credit score reporting system is being rolling out. Comprehensive Credit Reporting will see additional ‘positive reporting’ factored in by the Credit Reporting Bodies in Australia. Read more here.  

If you’re still concerned about your credit history, you could speak with a finance broker. Finance brokers can organise loans on your behalf. They may be able to help you find lenders who specialise in bad debt. They won’t charge for the service; instead, they’ll earn a commission from the lender.  

Check the fees and charges 

Just as with all financial loans, lenders charge fees on loans to cover their costs and financial risk. Personal loans can come with fees and charges that include:

  • Starting fees 
  • Account keeping fees 
  • Early exit fees 
  • Administrative fees 
  • Late payment fees  
  • Redraw fees


When you’re comparing personal loans, look at ALL the associated fees and costs by reading the key facts and figures sheet for the product, and the product disclosure statement (PDS). Every loan is different, so you need to make sure you look at all fees and charges before signing on the dotted line. 

Frequently asked questions

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

How long do personal loans take?

Depending on the lender, some personal loan applications can be approved in as little as one hour, or you may need to wait until the next business day. If approved, you may receive your money on the same day, the next business day, or within the week.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Where can I get a personal loan?

The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:

There are three main ways to access personal loans. You can go through a comparison website, such as RateCity. You can use a finance broker. Or you can directly contact the lender.

How are personal loans regulated?

Personal lenders in Australia are regulated by ASIC (the Australian Securities & Investments Commission) and must follow responsible lending rules. That means they can’t lend money without making “reasonable inquiries” about a borrower’s financial situation and ensuring the loan is “not unsuitable” for them.

What are the pros and cons of personal loans?

The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.

One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

Is a personal loan a variable or fixed-rate loan?

Depending on the personal loan lender, you may be able to choose between a fixed and a variable interest rate. But, there are a few distinct differences between the two, so it’s important to weigh up the pros and cons before deciding on what’s right for you.

A fixed interest rate loan gets you the convenience of knowing exactly how much you need to repay each fortnight or month. On the other hand, you generally won’t be able to make lump sum or advanced payments to close your personal loan early - or at least not without a penalty.

With a variable interest rate personal loan, you may be able to get a longer loan repayment term, with the option of paying off the loan early. You typically won’t need to pay any additional charges for an early full repayment either. The potential disadvantage with an interest rate that can change is that your repayment is not entirely predictable, as it can fluctuate with the market. However, you’ll likely have more options as more lenders offer a variable interest rate personal loan.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

Can I merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full term.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

What do credit scores have to do with personal loan interest rates?

There is a strong link between credit scores and personal loan interest rates because many lenders use credit scores to help decide what interest rates to offer to potential borrowers.

If you have a higher credit score, lenders will probably classify you as a lower-risk borrower. That means they’ll be keen to win your business, so they may offer you a lower interest rate if you apply for a personal loan.

If you have a lower credit score, lenders will probably classify you as a higher-risk borrower. That means they might be concerned about you defaulting on the loan and costing them money. As a result, they might protect themselves by charging you a higher interest rate.

Can I get a bad credit personal loan with a guarantor?

Some lenders will consider personal loan applications from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).

If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the repayments.

Are there alternatives to $2000 loans?

If you need to borrow $2000 or less, alternatives to getting a personal loan or payday loan include using a credit card or the redraw facility of your home, car or personal loan.

Before you borrow $2000 on a credit card, remember that interest will continue being charged on what you owe until you clear your credit card balance. To minimise your interest, consider prioritising paying off your credit card.

Before you draw down $2000 in extra repayments from your home, car or personal loan using a redraw facility, note that fees and charges may apply, and drawing money from your loan may mean your loan will take longer to repay, costing you more in total interest.