A personal loan is a lump-sum payment or line of credit, generally between $2,000 and $100,000, that you repay over a period of up to 7 years.
Personal loans are used for a variety of things, but generally, people tend to take them out for those one-off more expensive purchases like a car, paying for a wedding, doing renovations, or paying emergency bills. Personal loans can also be used to consolidate multiple other debts, like from credit cards, into one single debt and repayment schedule.
Since there are so many personal loan products and providers, it's important to shop around to find the best personal loan for you.
The interest rate is what you will be charged for borrowing. When you make a repayment on your personal loan, you are actually paying two different figures - the principal and the interest. The principal is your payments that go towards repaying the amount borrowed, and the interest is the extra amount that the lender receives as a fee for lending you the money.
For example, a 10% interest rate on a $20,000 loan will cost you $2,000 a year in interest. However, since you are repaying the principal, by the time you have paid off $5,000 of the loan, your interest will be 10% of $15,000 - meaning your interest payable is now $1,500.
When it comes to interest rates, you need to keep a few things in mind:
| Response | |
|---|---|
| Vehicle purchase or repairs | 40.28% |
| Debt consolidation | 34.72% |
| Home improvement | 23.61% |
| Holiday(s) | 16.67% |
| Other | 13.89% |
| Moving costs | 12.5% |
| Medical expenses | 10.42% |
| Education expenses | 8.33% |
| Business expenses | 4.17% |
| Special events or celebrations | 4.17% |
| Wedding expenses | 3.47% |
| Legal expenses | 1.39% |
Personal loans can differ in many ways other than the interest rate offered. While the interest rate is important, you may find that you save money with a higher interest rate loan that has certain features. We've outlined the most common features you'll find in the personal loan market:
Lenders will look at your personal circumstances and your credit history before they are willing to lend you money. Each lender has their own process and criteria, so if you are not approved for one loan, you can still apply for another. It is best to aim to meet the advertised criteria rather than apply for as many loans as possible, as too many applications can reflect poorly on your credit score - making it harder to get approved for future loans.
Generally, if you earn enough money, receive a reliable and regular income, and if your credit score is good, your chances of approval are higher. How much you want to borrow and whether you can afford the loan will also play a role. Lenders will also consider other eligibility criteria, like age (you have to be over 18) and residency (typically they will only accept your application if you're an Australian citizen or permanent resident, although there are some exceptions).
Most applications are now online, which means that you'll have to attach your documentation to the online application. Some documentation, such as bank statements, can also be provided through read-only access to your account. Online applications drastically reduce the time it takes to approve a loan.
Once you've applied, you'll hear back from the lender within the stipulated time frame. Some lenders have quick approvals and can process your application within 60 seconds. Others may take longer.
If you've been approved for the loan, you'll have to sign a loan contract, which the lender will send you. You will receive the funds after you've signed the loan contract.
The lender will ask you to nominate a bank account. Once your loan is approved, and the contract signed, the lender will process the payment. How long it takes will depend on the lender's turnaround time. This can range from an hour or two to a few business days. You'll receive all the funds at once, unless you applied for specific loan products such as a line of credit or an overdraft.
Personal loans can be used for a variety of reasons, here are some of the most common uses:
The first step to applying for a personal loan is to choose one. The best way to do that is to compare your options and find the best deal for you.
Make sure you meet the lender's eligibility criteria, and then fill out the application form and provide all the supporting documentation. The lender will assess your application and, if approved, the funds will be sent to your bank account.
You will usually need any of the following to prove your identity:
You may also need any of the following documents:
Applying for a car loan requires various documents to have the car verified:
Addicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)
Rates obsessed. Lenders come in all shapes and sizes, that's why we don't just track the big banks, but all the digi folk too. Pretty much everyone but your parents to be honest. 
Cash for whatever you need. Lending rates verified from 180+ products day and night. Whether you're buying a car, rennovating your home or heck just ready to let loose with the spending - we got you.
Still have questions? We've done our best to answer the most common questions people have about personal loans.
OurMoneyMarket offers personal loan solutions for whatever your need. Whether you want to buy a new car, pay for your wedding or renovate your home, you can choose between secured and unsecured loan options.
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