Unsecured personal loans
Everything you need to know about unsecured personal loans and how to find the right one for your circumstances.
Updated . What changed?
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Compare unsecured personal loans
What's in this guide?
- What is an unsecured personal loan?
- What are the benefits of an unsecured personal loan?
- How does an unsecured personal loan work?
- How do you find the best unsecured personal loan?
- What can you use an unsecured personal loan for?
- How many Australians have personal loans?
- Can I get an unsecured personal loan with bad credit?
- Can I get an unsecured personal loan if I'm self-employed?
- What to weigh up: The pros and cons of an unsecured loan
- Credit card vs unsecured personal loan – which is better?
- What happens if I can't meet my repayments on an unsecured loan?
- How to apply for an unsecured personal loan
- Frequently asked questions about unsecured loans
What is an unsecured personal loan?
An unsecured personal loan is a loan that allows you to borrow funds without using an asset as collateral. This gives you complete flexibility and means that you can use the loan to cover any worthwhile purchase.
What are the benefits of an unsecured personal loan?
Benefits of unsecured personal loans include:
Secured personal loans often have more restrictions on how you can use the loan funds. For example, most car loans are secured by the vehicle purchase, so they have to be used to buy a car. Unsecured loans, on the other hand, can usually be used for any one or multiple expenses and purchases. Use the loan amount however you need to, such as purchasing furniture or consolidating debt (or both). How you use it is up to you.
Lots of options
This is a standard type of loan so you'll find that most banks and lenders offer their own version of an unsecured personal loan. This gives you a wide range of options to compare to find the right unsecured loan for you. You can choose which interest rate loan type you want (best fixed rate personal loans or variable rate personal loans), which loan term works for you and which other features you want to take advantage of.
While interest rates are generally higher for unsecured personal loans than the secured personal loans, you can still find loans that offer low rates. Peer-to-peer lenders, for example, offer rates on unsecured personal loans that are on par with most secured loans.
What is the comparison rate on an unsecured personal loan?
A comparison rate helps you understand the true cost of a loan. Displayed as a percentage, this rate includes both the interest rate and the various fees and charges that come with the loan. That's why it is generally higher than the displayed interest rate. Please read our guide to personal loan comparison rates for more information.
How does an unsecured personal loan work?
Unsecured personal loans generally let you borrow from $1,000 to $100,000 without needing to use an asset, like a car or property, as security. You can use the loan for any worthwhile purpose and repay the loan plus interest over an agreed term. Terms generally vary from 1 to 7 years.
While you can generally use the funds however you want, you may be asked to list why you're applying for an unsecured loan. This will form part of the lender's decision.
Unsecured loans will generally have higher rates than secured personal loans. You may also need to pay establishment fees or ongoing fees, so be sure to check these before you apply. Some unsecured personal loans will also come with additional features, such as the ability to repay your loan early without penalty.
Why is the interest rate higher than a secured loan?
Interest rates on unsecured loans are higher for borrowers, as lenders are taking on a higher risk. If your loan is secured, the lender can take ownership of the asset you've used as collateral to cover the cost of the loan. Because they don't have that collateral on an unsecured loan, to safeguard themselves, lenders charge more interest so that they have more to fall back on should you fail to meet your repayments.
Harmoney Unsecured Personal LoanBorrow up to $50,000 and receive a tailored fixed interest rate from 6.99% p.a.
How do you find the best unsecured personal loan?
Comparing your unsecured personal loan options is an important part of finding the right loan for you. Here are some things to keep in mind when doing so:
- Interest rate. Check whether the interest rate is fixed or variable and whether it's competitive. Unsecured personal loan rates generally range from 7.5-18%. Don't forget to check the comparison rate.
- Minimum and maximum loan amounts. All lenders will set a minimum amount that you can borrow and the majority will also have a maximum – these usually vary between $1,000 and $100,000. It's important to check that the amount you need is within the range offered by the lender.
- Fees and charges. You can be charged upfront and ongoing fees for an unsecured loan, so check what these are before you apply. You can look at the comparison rate to see the overall cost of the loan, which will include these fees.
- Additional features. Your loan may come with additional features that you might find convenient, such as online account management, a redraw facility to access additional repayments or discounts on additional products offered by the lender.
What can you use an unsecured personal loan for?
There are a multitude of options for what you can use your unsecured personal loan for:
Use an unsecured personal loan to finance your big day, and enjoy the wedding of your dreams.
Whether you're refitting the kitchen or doing some much needed maintenance, an unsecured loan could fund your home renovations.
When something goes wrong with your wheels, you have to get back on the road fast. An unsecured personal loan could help.
Consolidating your debt, be it other personal loans, credit cards or a combination of the two, could save you money and relieve stress.
How many Australians have personal loans?
While the below map shows data for both secured and unsecured personal loans, it's still a good indication of how popular personal loans are Australia-wide. The map shows that, on average, more than one in five Aussies (23%) have or will have a personal loan in the next six months. That's the equivalent of 4.47 million Aussies.
Sources: Reserve Bank of Australia, Finder Consumer Sentiment Tracker May 2020
Is it better to get a secured or an unsecured personal loan?
Whether an unsecured or a secured personal loan is better for you will depend on your preferences and circumstances. Secured personal loans tend to be cheaper than unsecured loans, but if you don't own a valuable asset or you would prefer not to risk your assets, you may prefer an unsecured loan. For more information on secured vs unsecured personal loans, check out our guide.
Can I get an unsecured personal loan with bad credit?
Because unsecured personal loans pose more of a risk to lenders, it can be more difficult for borrowers with poor credit histories to get approved. However, there are some lenders that cater to bad credit borrowers specifically. These include:
- Short term loans. Short term loans, also known as "payday loans", are an unsecured finance option for people with bad credit. These types of loans are more expensive than other types of personal loans, and terms are much shorter – from 16 days to one year. They also usually have much lower minimum and maximum amounts than most unsecured personal loans, usually from $100 to $2,000. However, in some cases, personal loans can be available up to $5,000, or you may be able to apply for a personal loan up to $10,000.
- Debt consolidation loans. If you're struggling with multiple debts, you could consider combining them under one new account with a debt consolidation loan. Some lenders offer – and even specialise in – debt consolidation loans for bad credit applicants. Be aware, however, that the point of a debt consolidation loan is to save money on your repayments, so only choose this option if the lender in question offers a better deal than what you are currently paying. It's also important to check the eligibility criteria before applying, to ensure that you meet the necessary requirements.
Can I get an unsecured personal loan if I'm self-employed?
If you're self-employed, you can get an unsecured personal loan, particularly if you have a good credit history. However, you may have to supply more documentation than someone who is employed full-time by a corporation in order to qualify for a standard unsecured personal loan. This could include:
- Tax returns. You may have to show up to two years worth of personal or company tax returns.
- Financial statements. Profit/loss statements may also be required to support your income.
- Notice of Assessment. The lender may require up to two years of your recent Notice of Assessment (NOA) given to you by the Australian Taxation Office (ATO).
- Proof of rental income. If you have any income from rental properties, you can declare this with real estate statements or copies of your executed lease agreements.
- Recent bank statements. These can usually be accessed digitally via your secure online banking. However, hard copies may be required, depending on the lender.
- Company-specific information. If you own your own business, be prepared to provide information such as your company's ABN, address, etc.
Alternatively, you can opt for a low-doc personal loan as a self-employed individual. Low-doc loans are easier to apply for and require much less documentation. However, there are usually higher rates and fees involved.
What to weigh up: The pros and cons of an unsecured loan
- No asset security. This is beneficial if you don't want to risk an asset that you're buying or one that you already own. It also opens up loans to borrowers who do not necessarily own an asset of significant value.
- Flexible loan purpose. Once you're approved, the funds will be transferred to you and you can use them to consolidate debt, purchase whatever you need, or even to invest.
- Easy application process. The application can typically take place online if you can provide the appropriate documentation required. After the application, you will usually get a response in as little as 60 seconds. Approval time will depend on the lender.
- Can have higher fees. The lender may charge higher fees to compensate for the fact that there is no asset as collateral. The fees may come in the form of an establishment fee or monthly fees.
- Penalties for missed payments. The lender may charge you high fees for late payments. It can also take legal action against you and take you to court if you default on the loan.
- Higher interest rates. Interest rates are generally higher on unsecured loans.
Is there anything to avoid with an unsecured personal loan?
- Not being upfront about what you're using the funds for. When you apply for an unsecured personal loan, you will need to tell the lender what you're applying for. Always be upfront with your lender about this, whether it be for business purposes, to consolidate debts or to take a holiday – honesty is the best policy.
- Borrowing more than what you need. Use a personal loan repayment calculator to see how much your repayments will be. This will ensure that you're aware of whether or not you'll be able to afford repayments on your current budget. Even if you're offered a larger loan, consider whether you should take it on. The loan will be your responsibility to repay.
- Unlicensed lenders. Always make sure you're getting an unsecured personal loan from a licensed lender. All providers must be licensed with ASIC. You can search through the ASIC Professional Register to check this.
- Loans with excessive costs. Make sure to compare loans so that you get a competitive offering. Don't just look at the interest rate either; make sure you check upfront and ongoing fees as well as the comparison rate to get an idea of the true cost of the loan.
Credit card vs unsecured personal loan – which is better?
Whether a credit card or an unsecured personal loan is better will largely depend on a number of contributing factors, including:
- How much you need
- What you need the funds for
- Your income
- Your credit rating
Below we'll outline the pros and cons of both unsecured personal loans and credit cards, and what they are both suitable for.
What to consider with an unsecured personal loan
What to consider with a credit card
What happens if I can't meet my repayments on an unsecured loan?
Most lenders have financial hardship assistance in place for unforeseen circumstances. Therefore, if you can't meet your repayments on an unsecured loan for any reason, it's important that you let your lender know as soon as possible. This will help you to avoid potential late payment fees, defaults on your credit report or legal action.
Your lender may be able to postpone a single repayment until you have the funds, apply a temporary repayment freeze, or reduce your repayments and restructure your loan to make it more manageable for you.
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How to apply for an unsecured personal loan
If you think an unsecured personal loan is for you, all you need to do is use Finder's comparison table to compare unsecured loan options. After browsing through the table and finding a suitable loan, click "Go to site" to go to the lender’s website and start the application process. Typically, to get an unsecured loan, you'll need to meet a range of criteria set by the lenders. You:
- Must be at least 18 years old
- Will usually need a good credit rating
- Must be able to provide proof that you will be able to pay off the loan
- May be asked to provide copies of your payslips, bank account statements and other credit contracts
- Need to provide 100 points of ID
Frequently asked questions about unsecured loans
Personal Loan OffersImportant Information*
You'll receive a fixed rate between 6.99% p.a. and 25.69% p.a. based on your risk profile.
Apply for a loan up to $50,000 and repay your loan over 3 or 5 years terms.
You'll receive a fixed rate between 9.99% p.a. and 18.99% p.a. ( 10.88% p.a. to 19.83% p.a. comparison rate) based on your risk profile
An unsecured loan up to $55,000 you can use for a range of purposes and pay off over up to 7 years. Note: Majority of customers will get the headline rate of 12.69% p.a. (13.56% p.a. comparison rate) or less. See Comparison rate warning in (i) above.
You'll receive a fixed rate between 6.99% p.a. and 20.49% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.
You'll receive a fixed rate between 6.95% p.a. and 17.95% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Make additional repayments or pay off the loan early, penalty-free.
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