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Are you considering taking out an unsecured personal loan? Whether it's for a trip away, a car, a wedding, renovations or something else entirely, there are numerous options to consider. Find all the information you need to know about unsecured personal loans and how to compare them below in our fully comprehensive guide.
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.
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.
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.
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.
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.
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.
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:
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.
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
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.
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:
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:
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.
Whether a credit card or an unsecured personal loan is better will largely depend on a number of contributing factors, including:
Below we'll outline the pros and cons of both unsecured personal loans and credit cards, and what they are both suitable for.
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.
If you are thinking of deferring your loan repayments because of coronavirus, here are the conditions you need to know about.Read more…
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Struggling to repay your personal loan(s) as a result of COVID-19? Find out everything you need to know about what's being done to help people in your situation.Read more…
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:
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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.
⭐Finder Exclusive: Receive a 100% rebate up to $575 on your establishment fee when you apply and accept your loan offer through Finder plus use the promo code FINDER by 16 December 2020. T&Cs apply.
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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