Personal loans

A loan just for you

A personal loan can help you pay for something special like a holiday or home renovations. Make sure you can afford to borrow, and then shop around to get the best deal on interest rates, fees and charges.

How personal loans work

If you get a personal loan, you must repay the money you borrow within a specific time, usually 1 to 5 years. You also pay interest on the amount you borrow, plus fees and charges.

What you need to give the credit provider

All credit providers are required by law to lend you money responsibly. This means they must not lend you money if they think the credit is unsuitable for you.

The credit provider may look at your credit report and ask for:

  • Payslips
  • Bank account statements
  • Copies of other credit contracts or bills

This is so they can verify your ability to meet the loan repayments without financial hardship.

Secured and unsecured loans

Secured loans usually offer lower interest rates than unsecured loans, but you need to put up an asset, like your car or home, as 'security' to get the loan. If you don't repay the loan, the credit provider may (in some circumstances) sell your asset to get its money back without first going to court.

With unsecured loans you don't have to put up an asset as security, but the interest rate is usually higher. To get an unsecured loan, you must convince the credit provider that you can repay the loan. If you don't repay the loan, the credit provider may take you to court to get its money back.

Peer to peer lending

Peer to peer lending, also known as marketplace lending, is an alternative to traditional lenders such as banks, building societies or credit unions. People who have money to invest are matched with people who are looking for a loan, through an online platform.

Marketplace lenders offer secured and unsecured personal loans and you will need to provide your personal and financial details, just as you would with a more traditional lender. Find out more about peer to peer lending.

Check the interest rate, fees and charges

Personal loans usually have lower interest rates than credit cards - but they are still high compared to other types of credit. Fees can also be higher. 

Annual percentage rate

The annual percentage rate (APR) is the interest rate your credit provider will charge you to borrow money. It is also known as the 'listed' or 'published' rate. Multiply the APR by the term of the loan to find out how much interest you will have to pay over the life of the loan.

Work out your interest payments.

Personal loan calculator

Fees and charges

From 1 July 2013, fees charged on loans of $2,000 or less are capped (that is, limited to a maximum amount). For more information, see small amount loans.

From 1 July 2013, the fees and charges allowed on loans of more than $2,000 are also capped.

Smart tip

A small variation in interest rate can add up to a lot over time, so always shop around. Find out what charges you will be up for if you can't meet your repayments.

Fee limits on medium amount loans ($2001-$5000)

For 'medium amount' loans which are for amounts between $2,001 and $5,000 to be repaid between 16 days and 2 years, fees are limited to:

  • A one-off fee of $400
  • A maximum annual interest rate of 48%, including all other fees and charges

Fee limits on loans of more than $5000

For all loans of more than $5,000 or with terms longer than 2 years, the fees and charges must not be more than 48% annually (including any establishment or other fixed fees).

These fee caps do not apply to loans offered by Authorised Deposit-taking Institutions (ADIs) such as banks, building societies or credit unions.

Find out the term of the loan

A personal loan could sound good because it may offer a lower interest rate than other types of credit and repayments are spread over a long time. But keep in mind that the longer the loan term, the more you will pay in interest.

When comparing loans, make sure the term is the same for each loan. This will give you a true picture of the difference in interest rates.

Read your credit contract

When you take out a personal loan, you will be asked to sign a credit contract. The contract will detail:

  • The amount you borrowed
  • The interest rate, fees and charges
  • The amount of repayments and when they are due
  • The term of the loan

Always check the terms and conditions of your contract before you sign.

Check your credit provider is licensed

All credit providers and credit assistance providers (such as brokers) must be licensed with ASIC or be an authorised representative of someone who is licensed.

Search ASIC Connect's Professional Registers to check your credit provider or credit assistance provider is licensed or you can phone ASIC's Infoline on 1300 300 630.

For more information see consumer credit regulation.

Warning about loan scams

Be suspicious if you are contacted out of the blue by a company offering loans with low interest rates, as they could be operating a loan scam. Also be cautious if you come across a website offering loan applications online as you will need to check they are legitmate before apply for a loan. See our tips on how to pick a loan scam.

Stay out of debt

Try to pay off the loan quickly to reduce the amount of interest you will pay. Contact your credit provider early if you have trouble making repayments or see trouble with debt for help and advice. Also see borrowing basics for more tips on managing credit and loans.

Find out the true cost of a personal loan before you sign up. Consider whether it is the most cost effective credit product for you. Know exactly who you're dealing with, and act early if you find you can't keep up with repayments.

Related links

Last updated: 22 Nov 2018