The latest lending indicators from the Australian Bureau of Statistics (ABS) saw the value of new loan commitments for fixed term personal finance rise 6.1% in August, following a rise of 6.0% in July 2023.

Commitments for personal lending were bumped up by an increase in the number of fixed term loans for personal investment (8.2%), while loans for road vehicles rose 8.2%.

Meanwhile, the RBA has kept the national cash rate on hold for the fourth month in a row, with economists from the Big Four banks forecasting that cuts could be coming at some point in 2024. However, don’t think that your lender will automatically lower your personal loan interest rate to match – you may need to negotiate or refinance your personal loan to benefit from rate cuts.

Here are some of the most competitive personal loans on the RateCity database:

• Bendigo Bank Secured Green Personal Loan at 4.99% fixed (comparison rate 5.35%)
• Community First Home Improvement Loan at 5.24% variable (comparison rate 6.23%)
• Credit Union SA Tesla Powerwall Loan (HL members) at 5.69% fixed (comparison rate 5.69%)
• Gateway Bank Eco Personal Loan at 5.75% variable (comparison rate 6.76%)
• Illawarra Credit Union Online Personal Loan Package at 5.75% variable (comparison rate 6.39%)

Updated by Mark Bristow on 4 October 2023.

A personal loan allows you to borrow a sum of money for a specific personal use. Depending on the lender and your financial situation, you may be able to borrow between $2000 and $100,000 with a personal loan. This borrowed money is typically paid to you as a lump sum.

You then repay the loan amount, plus interest, over a predetermined length of time, known as the loan term. This term could be anywhere from 1 to 7 years long.

Personal loans can be used for a wide variety of other purposes, from paying for university fees and legal costs, to getting on top of other debts. A lender may ask why you are borrowing money when you apply for a personal loan, as the loan’s purpose may influence your application’s chance of approval.

One popular reason that some Australians apply for personal loans is to help pay for renovations to their property, whether to improve their lifestyle at home, or increase the value of their investment. But before you apply for a personal loan, it’s important to consider whether now is the best time to consider undertaking a renovation project, and if are there any risks or hazards to avoid.

When financing a renovation or buying a big-ticket item, some homeowners use their home loan to access the money they need. Others finance their project by taking out a personal loan. But which option is the right choice for you?

You may also be able to get a personal loan in Australia for: 

• Buying a car: Car loans are specialised personal loans for buying vehicles, and may be secured by the value of the car being purchased.
• Debt consolidation: Rolling other debts such as credit cards into one personal loan could help you manage your repayments and potentially help save on interest charges.
• Holidays: The right personal loan can help you go on a trip to remember, to be repaid gradually over time.
• Weddings: It’s no secret that your special day can be expensive and stressful, though a personal loan could help ease some of the financial pressure.
• Student fees: Investing in your education with the help of a personal loan could help you improve your future career prospects.
• Hospital bills: If your health insurance isn’t enough to cover your medical costs, a personal loan may be able to help.
• Veterinary bills: You could use your personal loan to pay for treatment for your feathered, furred, or finned friends.
• Dental work: A personal loan could help cover the cost of routine or major dental procedures.
• Cosmetic surgery: Reconstructive and elective surgeries can be paid for with the right personal loan.
• Rooftop solar: Using a personal loan to add green features to your home could also help to shrink your future energy bills.
• Boat loans: A specialised type of personal loan that could help you finance a boat and get out on the water.

Before you start your comparison, it’s worth figuring out what type of personal loans may best fit your needs. 

Secured personal loans

A secured personal loan uses an asset, such a car, as collateral for the money being borrowed. If you don’t keep up with your repayments, the lender can seize the security asset to help them recover their financial losses. 

Secured loans often have lower interest rates than unsecured loans as lenders consider them less risky, as the borrower is motivated to pay back their debt to avoid losing their asset. This lower risk could also let you borrow more money, or raise your loan application’s chance of approval if your credit score isn’t the best. 

Unsecured personal loans

An unsecured personal loan doesn’t have an asset attached as collateral, so lenders may consider them riskier. While this means that unsecured personal loans are more likely to have higher interest rates than secured personal loans, there's also no risk of losing your asset if you default. 

Debt consolidation loans

A debt consolidation personal loan may be able to help you manage other outstanding debts by combining them all into a single personal loan. With just one regular repayment to manage, one interest rate, and one set of fees, you can simplify your budget and potentially save money.

For example, imagine you had two maxed-out credit cards and an outstanding car loan. You’re paying interest plus fees on each of these credit products. By taking out a debt consolidation personal loan, you can clear all these debts at once, leaving you with just one loan to manage. You’ll be charged interest at a single rate (which is often lower than the rates charged on most credit cards) and pay just one set of loan fees. This may cost you less per month than managing three credit products separately, and help simplify your budgeting.

Keep in mind that if you apply for a personal loan with a lengthy loan term, you may pay more in interest on your outstanding debts than you would by paying them off separately over shorter terms, even if your new interest rate is lower and your monthly repayments are cheaper.

Line of credit

A line of credit is a personal loan that functions similarly to a credit card. Rather than borrowing a lump sum to repay over time, you will be able to borrow and repay money up to a maximum credit limit, which is often based on the value of the asset used as security, such as a vehicle, or equity in a property.

Guarantor personal loans

It’s possible to have a family member or friend act as a guarantor on your personal loan to increase your chances of approval. By co-signing your loan, the guarantor accepts responsibility for the debt if you’re unable to repay the loan, making it less risky for the lender to loan you money. You may consider a guarantor personal loan if you don’t meet the eligibility criteria for a personal loan on your own. However, make sure you only borrow an amount you can afford to repay. Failing to meet your repayments could strain your relationship with the guarantor as the financial responsibility for the debt will shift onto them.

There are many different features to consider when choosing a personal loan. Comparing each feature carefully can help you find the right product for your needs, because the best personal loan for one person may not be what’s best for someone else.

Most personal loans have a minimum amount of at least $5000. To borrow less than $5000, you may need to search for a payday loan or medium-amount loan, though the fees involved could be high. Borrowers experiencing financial stress may also be able to apply for the No Interest Loan Scheme (NILS) for essential purchases.

The maximum borrowing amount for a personal loan may depend on the lender, though a maximum amount of between $50,000 and $100,000 is not uncommon. The maximum amount a lender will allow you to borrow may also depend on factors such as your credit score or credit rating, your income and expenses, or what you use as security for the loan. Generally, the more you can lower a lender’s risk, the more they may be willing to lend you.

Personal loan terms can vary anywhere from six months to ten years, with many lasting between 12 and 60 months. 

Choosing a longer loan term means smaller monthly repayments, easing some of the pressure on your household budget. However, the longer you take to pay off a personal loan, the more interest and fees you’ll pay to the lender in total.

The reverse is also true – a shorter personal loan term will likely cost you more from month to month, but you’ll get out of debt sooner and pay less total interest on the loan. 

Sometimes a personal loan with a low interest rate but a long loan term can actually cost more in total than a personal loan with a higher rate and a shorter loan term.

You can use a Personal Loan Calculator to work out how your choice of loan term may affect your personal loan repayments, and whether a shorter or longer personal loan term may better suit your goals and financial needs.

Your credit score could affect your personal loan options, including the choice of lenders and the interest rates available to you. Your credit score is used by lenders to measure your creditworthiness, or how likely you are to repay the loan.

If your credit score is low, you may find it challenging to get approved for a personal loan, or you may only be eligible for loans with higher interest rates, which may be available from specialised lenders. But an excellent credit score could give you access to personal loan products from a wider range of lenders. You might also find yourself eligible for lower interest rates on personal loans, as borrowers with high credit scores may be viewed as less risky than those with bad credit scores.

That said, there are several other factors that contribute to the success of a personal loan application. Consider the eligibility criteria of each individual product before you apply for a personal loan.

Borrowers with bad credit may still be able to find a personal loan product that works for them. It’s also worth thinking about the steps you can take to improve your credit score, such as working on existing debts and building your savings.

1. Check your credit score

Knowing your credit score can help give you a better understanding of which personal loans and interest rates might be available to you. You can visit RateCity’s credit score hub to access your score within minutes.

2. Assess your budget

Consider using RateCity’s personal loan calculator to estimate your loan repayments and ensure you can comfortably afford them on your budget. This could help you make an informed decision on how much you can afford to borrow and increase your chances of approval when you apply.

3. Search and compare

RateCity’s comparison tables allow you to easily compare personal loans from a wide range of lenders. By adjusting the filters, you can find the options that may best suit your individual needs.

4. Check the lending criteria

Once you have compiled a personal loan shortlist, check to see whether you meet their eligibility requirements. When you apply, you will often need to provide your income and expenses, as well as proof of age, identity, and proof of citizenship or residency. 

5. Prepare your application

Depending on the lender, you may have the option to submit your personal loan application online or at a local branch. It’s a good idea to have all your required documentation ready before you get started.

6. Submit your application and await a decision

After submitting the information required, it’s time to await a response from the lender. In some cases, you could see your application approved within an hour and the money deposited in your account the next business day – check with the lender to find out their expected timeline. 

To take the hassle out of shopping for a personal loan, RateCity has several tools that may be useful to you: