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Unsecured personal loans
Getting an unsecured personal loan in Australia requires zero collateral whatsoever. They’re well worth looking into if you’d like to pay for something you don’t have the cash for right away. So if you’re hoping to take a trip overseas, remodel your home, or something similar, an unsecured loan can be very helpful.
Unsecured loans vs. secured loans
There are contrasts and similarities between secured personal loans which are guaranteed with collateral, and unsecured personal loans, which aren’t. First off, a secured loan involves you putting up an asset, such as your home or car, as security. If you default on repayments, your credit provider can to seize and sell the asset to recoup their losses. There is no such requirement for collateral with an unsecured personal loan. Related to this main difference are several other key things you’ll need to know:
- Secured loans typically offer lower interest rates. Secured loan providers can sell your collateral to recover their costs if you default. Thus, they take on less risk by extending you the loan and don’t require as much interest. This definitely doesn’t mean you need to put up security to land a low rate loan – far from it! The table above is a good place to start looking at different offers more closely.
- Using the funds from your loan. Secured loans may place restrictions on the amount you can borrow, and the purchases you may make using the loan funds. A loan amount is often limited to the value of the asset you’ve used as collateral. Unsecured personal loans often don’t have such restrictions, so you can use your credit to buy whatever you wish.
Let’s look closer at the features of unsecured personal loans.
Features of unsecured personal loans
Loan amounts for which no security is required
As noted, unsecured loans require no security. Being uncapped by the value of collateral, therefore, they tend to involve larger loan amounts. This might seem tempting at first glance, but you’ll want to consider your ability to repay before you commit to anything!
In Australia, you’ll find different loan providers vary in how much they are willing to lend you. Often this can depend on your credit standing and what you plan to use your funds for. This isn’t a bad thing at all. Rather, it means there are lots of loan products out there to compare and contrast.
Repaying your unsecured personal loan
Just as loan amounts vary, loan repayment periods for your zero security loan will vary too based on several facets. The amount you repay each month or fortnight will be determined by the interest rate, loan amount, loan term, and fees of your unsecured loan. It’s recommended that you think about whether a certain monthly repayment will be realistic for you before choosing a loan.
While considering repayments, check whether the loans you are looking at charge a fee for making additional repayments. The freedom to make early repayments when you come into money can be great if you want to be debt-free sooner.
Charges and fees
The most common fees associated with Australian personal loans are setup or establishment fees, and maintenance or ongoing fees. As shown in the ‘Other Fees & Information’ section of our should comparison tables, you should also keep an eye out for other charges. These may include repayment redraw fees, early repayment or prepayment fees, late repayment fees, and additional repayment fees.
Interest rate options
When browsing unsecured personal loan offers, you’ll find both fixed-rate and variable-rate loans. With fixed-rate unsecured loans, you’ll know exactly what you’ll be paying in advance – each month, and in total. This can be an advantage over variable interest loans because you’ll pay more interest for the latter if market interest rates rise. Correspondingly, when market rates drop, you’ll miss out on a low rate if you’ve gone for a fixed-rate unsecured loan.
An unsecured personal loan with a redraw facility will let you make repayments earlier should you come into some cash. On the other hand, if you want to redraw these extra repayments later, a redraw facility lets you do this too.
Unsecured personal loans vs. credit cards
Most Aussies are aware that credit cards can often come with painfully high interest rates! Here are some other things to keep in mind:
- Credit cards offer you the benefit of a relatively flexible schedule for repayment;
- Credit cards allow you interest-free days to take advantage of, another point in their favour;
- On the other hand, credit cards often have much higher interest rates than unsecured loans.
How can I find a low rate personal loan?
Two of the most common features you’ll find on comparison websites are comparison rates and advertised rates. The best way to find the lowest interest rate personal loan is usually to use the advertised rate, which is a figure for exactly that – the interest rate of the unsecured loan.
You can look at comparison rates to get a more holistic picture of how much a low rate personal loan will cost you over time. Because they integrate loan size, total repayment period, and loan fees, they are very handy for comparing different loan products. A comparison rate is thus a percentage figure which better represents a loan’s interest rate once these costs are factored in.
Where can I find low interest unsecured loans?
The Big 4 Australian banks: Commonwealth Bank, ANZ, Westpac, and National Australia Bank always have unsecured loans on offer. You’ll also find them from smaller banks like Macquarie, HSBC, Bank of Queensland, and similar.
Look online for peer-to-peer credit providers like SocietyOne and RateSetter, and non-bank loan providers like Liberty and Now Finance to extend your search. You’ll find offers from a diverse array of lenders in the above table—and hopefully, you now feel equipped to make an informed comparison.
Am I eligible for an unsecured personal loan?
Here are some of the most common eligibility criteria for Australian loans:
Age: You’ll typically have to be over either 18 or 21
Credit history: When you compare personal loans, you may notice some lenders offering higher or lower interest depending on whether your score is below average, average, good, or excellent. If you have no defaults in your credit history, this is a big plus. If you apply for finance a lot, this may damage your chances of being approved.
Employment: Sometimes a lender will extend you a loan only if you are in regular employment. Some will approve loans for people on benefits or a pension.
Income: As a minimum, somewhere in the range of $45,000 to $55,000 is most common
Financial circumstances: By looking at your salary alongside your liabilities, lenders can gauge whether you’re really in a position to repay the loan. A credit card which has a high limit might be viewed as a liability – even if you’ve no debts outstanding on it.
Australian citizenship: The majority of lenders loan money only to citizens or permanent residents. Some will approve those holding a valid visa, but only a few will approve loans for those on a 457 visa.
Applying for an unsecured personal loan
Whether or not you’ll be approved for a loan is based heavily on the extent to which you fulfill the eligibility criteria. It’s highly recommended you check our blog post on the amount you might be able to borrow and whether you’ll get approved. If you’ve got existing loans you’re struggling to repay and you think you won’t get approved, consider saving instead.
Things you may need to provide include:
- Proof of income or stable employment that the lender can verify using your employer’s details and copies of recent payslips.
If you are self-employed, supply your bank statements covering the past year. Provide your latest business or personal tax return. Both of these should be recent and from the past 18 months.
- Documents showing your expenses, liabilities, and assets.
- Recent financial statements from your bank dating back at least three months.
- Your passport or driver’s license as proof of identification.
How can I spend my loan?
Some restrictions may apply, so it’s good to ask the loan provider before making an application. Otherwise, this should be the easy part, for most people! Some of the most popular personal loan purposes include: