Finding the Right Personal Loan: A Guide to Your Options in Australia

Key Takeaways

• Secured vs. Unsecured: Secured loans use an asset (like a car) as collateral to often get a lower rate, while unsecured loans don't require assets but may have higher interest rates.

• Fixed vs. Variable Rates: Fixed rates offer budget certainty with predictable repayments, whereas variable rates provide flexibility and potential savings if market rates drop.

• Purpose Matters: Specific loans exist for debt consolidation, home renovations, and cars, each tailored with features that might suit your particular goal better than a generic loan.

• Check the Comparison Rate: Don't just look at the interest rate; the comparison rate includes most fees and gives you a truer picture of the loan's cost.

Choosing the right personal loan can feel like a maze of jargon and fine print. Between secured and unsecured options, fixed or variable rates, and loans tailored for everything from cars to weddings, it’s easy to feel overwhelmed. The key is understanding how each loan type works, what it’s best suited for, and which structure aligns with your financial situation and goals.

This guide breaks down the main types of personal loans available, how they differ, and how to decide which one fits your needs and repayment capacity.

The First Big Decision: Secured vs. Unsecured Personal Loans

What is a Secured Personal Loan?

A secured personal loan is backed by an asset, such as a car, term deposit, or other valuable property. The lender uses this asset as collateral, meaning they have a legal right to repossess or sell it if you fail to meet your repayments.

Because the lender takes on less risk, secured loans usually come with lower interest rates and higher borrowing limits. For instance, a car loan is typically a secured loan, with the vehicle itself serving as collateral until the loan is paid off in full.

According to Canstar, interest rates for secured personal loans typically start from around 6% per annum, with averages sitting close to 9.5%, depending on factors such as your credit profile and the type of asset used as security.

This type of loan suits borrowers who:

• Have a valuable asset they’re comfortable using as security.

• Want to access a larger amount of credit at a lower rate.

• Are confident in maintaining regular repayments.

What is an Unsecured Personal Loan?

An unsecured personal loan doesn’t require any collateral. Instead, the lender relies on your income, credit score, and financial history to assess your eligibility. Because there’s no asset backing the loan, interest rates tend to be higher to compensate for the additional risk to the lender.

These loans are typically used for one-off costs such as debt consolidation, weddings or travel. Loan amounts vary by lender and the type of collateral offered, but they generally range from around $2,000 up to $100,000. Some lenders set minimum loan amounts of $5,000 or more, and typical borrowing limits usually fall within the tens of thousands.

This type of loan works best for people who:

• Don’t own assets suitable for collateral.

• Need quick access to funds without extra paperwork.

• Prefer not to risk losing personal property if financial circumstances change.

💡Interested to know more? You can read our article on How to Qualify for an Unsecured Personal Loan

Which One is Right for You?

The main trade-off between secured and unsecured personal loans is risk versus cost. A secured loan may offer a lower interest rate, but you’ll need to be comfortable pledging an asset. An unsecured loan gives you flexibility and peace of mind, but you’ll likely pay more in interest over time.

If you’re unsure, compare both types side by side using the comparison rate—a figure that combines the interest rate and fees into one percentage. It gives you a clearer picture of the real cost of borrowing.

In a hurry and need funds fast? You can apply through Friendly Finance for an easy, seamless process. Fill in our application form to get started!

The Second Big Decision: Fixed Rate vs. Variable Rate Personal Loans

What is a Fixed Interest Rate?

A fixed-rate personal loan keeps the same interest rate for the entire loan term. This means your repayments stay the same each month, regardless of changes in the market or Reserve Bank cash rate.

Pros:

• Predictable repayments that make budgeting easier.

• Protection against future interest rate rises.

• Ideal for borrowers who value stability.

Cons:

• Limited flexibility—some lenders charge fees if you make extra repayments or repay early.

• If market rates fall, you won’t benefit from lower interest costs.

Fixed-rate loans are best for people who want certainty in their repayments and don’t plan to make large lump-sum payments.

What is a Variable Interest Rate?

A variable-rate personal loan has an interest rate that can rise or fall depending on market conditions. When rates drop, your repayments may decrease; when they rise, your payments will increase.

Pros:

• Flexibility to make extra repayments without penalties.

• Potential savings if interest rates go down.

• Often includes redraw facilities to access funds you’ve paid ahead.

Cons:

• Repayments can fluctuate, making budgeting more challenging.

• If rates rise significantly, the loan may become more expensive.

🔎Related Read: Interest Rates Explained: Everything You Need to Know

How to Choose: Do You Need Budget Certainty or Flexibility?

If you prefer predictable payments and peace of mind, a fixed-rate loan might suit you better. If you’re comfortable managing some variability in exchange for flexibility and possible rate drops, go with a variable-rate loan.

Some lenders also offer split loans, allowing you to divide your borrowing into fixed and variable portions for a balance of stability and flexibility.

Common Personal Loan Types Based on Purpose

Debt Consolidation Loans

A debt consolidation loan lets you combine multiple debts—such as credit cards, payday loans, or store cards—into one personal loan with a single repayment schedule. The goal is to simplify your finances and potentially reduce interest costs.

According to Finder, consolidating high-interest debts into a lower-rate loan can save hundreds or even thousands over time, provided you don’t take on new debt while repaying it.

Car Loans

A car loan is typically a secured personal loan where the vehicle itself acts as collateral. Lenders often offer lower interest rates because the car reduces their risk. Car loans can be used for both new and used vehicles, though older cars may attract higher rates or require larger deposits.

Home Renovation Loans

Home renovation loans are designed for upgrading, repairing, or improving your home. They can be secured (using your property or equity) or unsecured, depending on the amount and your circumstances. These loans can add value to your property and are often used for kitchen or bathroom renovations, extensions, or landscaping.

Wedding Loans, Holiday Loans, and Other Lifestyle Loans

These loans are designed to cover one‑off life events such as weddings, honeymoons or major holidays. They are typically unsecured, and many lenders offer amounts ranging from about $2,000 to $100,000. While they can be convenient, it’s best to borrow only what you need and have a clear repayment plan, as unsecured loans often carry higher interest rates than purpose‑specific secured loans.

Looking for a loan? You’re exactly in the right place! Here at Friendly Finance we help match you to a lender with a high chance of approving your application. Fill in our quick and simple form to get started!

How to Choose the Right Personal Loan for Your Needs

Step 1: Clearly Define Your Loan Purpose

Knowing why you’re borrowing helps you choose the right structure. For example, if you’re buying a car, a secured loan might give you a better rate. For short-term goals or personal projects, an unsecured loan is simpler.

Step 2: Assess What You Can Afford to Repay

Use an online personal loan calculator to estimate your monthly repayments, factoring in interest and fees. Make sure the repayment amount fits comfortably within your budget, leaving room for unexpected costs.

Step 3: Check Your Credit Score

Your credit score affects not only whether you’re approved but also the interest rate you’ll receive. You can check your credit report for free through illion, Equifax or Experian.

Step 4: Compare Comparison Rates, Not Just Interest Rates

Many lenders advertise low interest rates but add hidden fees that make the loan more expensive overall. The comparison rate reflects the true cost, including most mandatory fees, allowing for a fairer comparison.

FAQs

What is a personal loan comparison rate?

It’s a percentage that combines the interest rate and most fees, showing the true cost of the loan.

Can I use a personal loan for anything I want?

Generally yes, but some lenders restrict loans for purposes like gambling, shares, or illegal activities.

What type of personal loan is easiest to get?

Unsecured loans are easier to apply for since they don’t require collateral, but lenders will review your income and credit history carefully.

Is it better to get a fixed or variable rate personal loan?

That depends on your priorities. Fixed rates are predictable, while variable rates offer flexibility and potential savings if rates fall.

Can I pay off a fixed-rate personal loan early?

Some lenders charge early repayment or break fees on fixed-rate loans, so always check your loan terms before doing so.

Are there penalties for making extra repayments on my personal loan?

Most variable-rate loans allow extra payments without penalty, while fixed-rate loans may charge fees.

What is a loan “redraw facility” and how does it work?

A redraw facility lets you withdraw extra repayments you’ve made above your minimum amount, giving you access to those funds when needed.