The Different Types Of Personal Loans

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    Unsure about the kind of personal loan you require? It's not just you. Before applying for a personal loan, one must be aware of the variations in personal loan forms and characteristics. The best option to receive the money you require without having to go through a lengthy application procedure is through personal loans. Depending on your circumstances, a variety of personal loan options are available, so it's critical that you make a wise decision.

    There are many distinct loan types, and each has its own advantages and disadvantages. We'll discuss the most popular personal loan types in this article so that you can choose whether or not each one will be appropriate for your needs.

    You can borrow money with a personal loan to pay for something unique, such as a vacation, a new automobile, or home improvements. You must pay it back with interest over a set period of time, often one to seven years.

    Negotiating the finest personal loan terms can save hundreds of dollars in interest and fees.

    Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing

    How does it work?

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    You can borrow money for personal purposes with a personal loan. Holidays, weddings, new cars, and house improvements are a few examples of this. Additionally, you might use a personal loan to cover your education or medical costs.

    Similar to other loans, such as same-day payday loans, personal loans function in the same way. The concept is to borrow money and pay it back in instalments over a predetermined time frame. The interest and costs the lender assess for granting and processing the loan may be included in the payback.

    Personal loans come in many forms. The difference between secured and unsecured loans is the most fundamental. You may be assessed either fixed or variable interest when it comes to interest.

    What are the different types of personal loans?

    Secured personal loans

    A form of personal loan known as a secured personal loan is one of the personal loans that is normally more common. Borrowing money against something you own, or even for the goods itself, is one way to get financial assistance. If you are unable to keep up with the payments, you will need to put up some form of collateral, such as a car. If you are unable to keep up with the payments on the secured loan, the lender has the right to seize and sell the collateral.

    For secured loans, the following types of collateral are generally accepted, allowing borrowers to benefit from cheaper interest rates and fees:

    • Property
    • Vehicles (cars, motorbikes, boats etc.)
    • Money in a term deposit or in cash
    • High-value items, such as jewellery or artwork (less common, judged on a case-by-case basis).

    With secured loans, you may be eligible for better interest rates and fees since the lender may view you as less of a risk if you have an asset to use as collateral.

    Unsecured Loan

    When you apply for a personal loan that is not secured by any asset, you will not be needed to provide the lender with a collateral item in any form. Because of this, if you don't own a vehicle or a house, you should seriously consider applying for an unsecured loan. In order to demonstrate to the creditor that you are capable of meeting the financial obligations associated with the loan, you can be asked to present paystubs as evidence of your income. If this is your first time applying for credit, having a guarantor could make it easier for you to get approved for an unsecured loan.

    On the other hand, unsecured personal loans, as their name suggests, do not require you to put up any collateral. This is not the case with secured personal loans, though. You are able to get the loan; nevertheless, unsecured loans typically have higher interest rates and other charges than secured loans. In the event that you do not make your loan payments as agreed, the lender may still file a lawsuit against you. As a direct result of this, there are consequences for skipping payments.

    On the good side, unsecured loans are typically more simpler to obtain compared to the majority of credit cards, and they still offer lower interest rates, which we will go over in more detail later.


    • A wise choice if you lack any assets
    • Generally speaking, unsecured loans offer lower interest rates than credit cards.


    • Heavy fines for late payments
    • If you don't pay the loan back, the lender could sue you.
    • When opposed to a secured loan, most suppliers charge greater fees and interest rates.

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    ​​Overdraft/Line of Credit

    In the event of a sudden emergency, having access to an overdraft or line of credit is quite helpful. You are permitted to overdraw your account up to a predetermined limit set by the bank. Only the money you use is subject to interest; not the total amount you are permitted to borrow is.


    • 24/7 accessibility to additional funds for bad situations
    • Interest is only assessed on amounts used.

    Debt Consolidation

    You can eliminate your debt more quickly by using a debt consolidation loan. You can save money on interest payments by merging all of your loans into a single personal loan.

    A debt consolidation loan is a kind of personal loan (or a mortgage loan) that enables you to consolidate your other debts, such as credit card and auto loan bills, into one loan so you may pay off your combined debts in a single, presumably lower-rate location.

    But this approach may have certain drawbacks. For instance, you might wind up converting your short-term loans into long-term ones, which would negate the advantages of a reduced interest rate. This is particularly true if you consolidate your loans into a home loan, which typically has loan terms of 20 to 30 years and an interest rate that is significantly lower (sometimes under 3 per cent pa). But if you combine your debts into a smaller personal loan, you can avoid this.


    • You can pay off all of your loans more quickly because to the competitive rate.
    • Instead of many payments throughout the month, make one consistent payment.


    • Possibility of incurring further debt and ease of returning to unwise spending patterns

    Student loan

    Let's face it, university students usually have a very limited budget. Thankfully, a lot of financial organisations recognise the financial strain that college students face and provide support in the form of student loans. This loan can help you pay for a laptop, textbooks, and other educational expenditures so you won't have to worry about working a part-time job in addition to your studies.

    These loans are a specific type that are only available to students in Australia. They can be used to help them pay for items that would aid in their studies, such as new computers, textbooks, or transportation to and from TAFE or university.

    Many lenders and banks offer these loans to Australian citizens over the age of 18, which helps students avoid paying for such expenses up front and can be postponed for up to five years if necessary. Some banks don't impose application fees for student personal loans, but interest starts to accrue as soon as you take out the loan. This can quickly become out of reach for a student with a tight budget.

    Most banks and lenders that offer these loans allow you to apply with a guarantor, such as your parents or a guardian, if you believe you might have difficulties making the repayments. In some circumstances, having a guarantor on standby might also allow you access to fees and interest rates that are less expensive than typical.


    • There is a five-year grace period for student loan repayment.
    • On a student loan, some banks don't charge an up-front cost.


    • Interest accrues beginning on the day you take out the loan, so it mounts very quickly.


    In order to pay for unforeseen expenses, you might attach an overdraft line of credit to your regular transaction account. In essence, it causes a brief rise in your bank account amount. While interest is charged on overdrafts, it frequently only applies to the amount that is used in any given month.

    Overdrafts often only function once your account balance drops below $0 and will go up to a certain limit. You should research any establishment and ongoing fees associated with overdrafts before utilising one.

    Overdrafts are theoretically permissible for non-emergency purchases, but you ought to probably look into alternative possibilities first. For instance, you should certainly reassess your spending patterns and create a new budget if you frequently find that your bank balance is negative.

    Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing

    Fixed vs variable personal loans

    Additionally, fixed or variable interest rates are available for personal loans: With a fixed loan, your interest rate is fixed for the whole term of the personal loan. A variable personal loan, in contrast, allows your interest rate to fluctuate based on the whims of your lender or changes in the general market. As an illustration, as of this writing (January 2021):

    • Although fixed-rate loans typically have slightly higher rates and expenses (such as exit fees for breaching the fixed period), they can provide you with solid repayment options.
    • Loans with variable rates frequently feature cheaper rates and fees, but this could change if the lender raises the interest rate on your loan (and your repayments would increase with it)

    Your payments will stay the same over the course of the loan with a fixed interest rate since they are fixed. So you'll be aware of the exact amount that will be deducted from your bank account each month.

    Your payments will change if interest rates change if you have a variable interest rate. You will have to make larger payments as interest rates increase. Your repayment obligations will decrease if interest rates drop.

    Typically, there are no early exit fees for loans with variable interest rates. This can be a better option if you're aiming to repay the loan early.

    Depending on what you want to use the money for, either a fixed or variable rate loan may be more advantageous. For larger items, fixed loans may be preferable because you can have more streamlined repayments. Still, a variable personal loan can be the best option if you only need a little loan amount—say, for a vacation that you want to pay off quickly.

    Frequently Asked Question About Personal Loans

    Yes, payday loans are legal–and by law, payday loan lenders must lend responsibly. That means payday loan providers must assess your financial position and ensure you can afford to repay the loan without substantial hardship.

    Personal loans are unsecured loans in which the bank loans you money on your creditworthiness, and no security is required for the money borrowed. However, the interest rates of personal loans are higher than any other loan like a home loan or education loan, considering the amount of risk involved in lending the sum.

    An unsecured loan is a loan that doesn't require any type of collateral. Instead of relying on a borrower's assets as security, lenders approve unsecured loans based on a borrower's creditworthiness. Examples of unsecured loans include personal loans, student loans, and credit cards.

    How do I decide between fixed or variable interest rates?

    You may have two alternatives when it comes to interest: fixed or variable interest.

    When your loan's interest rate is fixed, it won't alter during the course of the loan.

    The rate you pay with variable interest can alter over the course of your loan. This suggests that the rate may change although it's not always the case. Throughout the course of your loan, it may go up or down.

    This is so because the Reserve Bank of Australia's rate, which is the basis for variable interest rates, is used (RBA). Eleven times a year, this is done. Each lender establishes their own interest rate in accordance with this rate.

    As a result, you run the risk of paying more than the market rate if you choose a fixed interest rate and the rate of interest decreases. However, if the rate rises, you will wind up paying a greater rate than what is available on the market.

    Budgeting is simple with fixed rates. You continue making the same instalments and know what to anticipate. However, monthly budgeting with variable interest can be a little challenging.

    But variable rate loans frequently have more advantageous aspects. For instance, they might provide longer terms and give you the choice to pay back the loan early without incurring penalties. Additionally, you can be given access to free additional repayments and redraw options. Fees for these features may apply to fixed-rate loans.


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