A personal loan isn’t a one-size-fits-all product. There are several types, each suited to different circumstances.
Whether it’s a holiday, a wedding, home renovations, consolidating debt, or education and medical costs, a personal loan gives you access to funds now, without waiting to save the full amount.
A personal loan lets you borrow for something specific, like a holiday, car, or renovation, and repay it with interest over a fixed term, usually one to seven years.
Comparing your options properly can save you thousands in interest and fees.
Below, we break down the different types of personal loan, and how they compare.
Fixed vs variable personal loans:
A fixed rate stays locked for the loan term, so your repayments never change. A variable rate can move with your lender or the broader market.
Fixed rates often suit larger purchases, since repayments stay structured and predictable. Variable rates can work well for smaller amounts you plan to pay off quickly, letting you take advantage of any rate drops.
Personal loans vs car loans:
A car loan is essentially a personal loan used specifically to buy a car. Most are secured against the car itself, since it’s a high-value asset.
A smaller number are unsecured, which usually means a higher interest rate. As a rough guide, secured car loans often sit around 5% p.a., while unsecured options can run closer to 6.5% p.a. or higher.
Personal loans vs credit cards:
A personal loan is a fixed amount at a fixed structure. A credit card gives you a revolving line of credit up to a set limit, usually at a higher rate.
Credit cards suit everyday spending and bills, and often come with rewards. Personal loans tend to suit larger, one-off purchases where you want to know exactly what you’ll repay from the outset.
Personal loans vs P2P lending:
Peer-to-peer lending connects individual investors directly with borrowers through a marketplace, rather than going through a bank. One party borrows, the other lends, and interest is paid in between. It’s a genuine alternative, though terms and protections can vary more than with a traditional lender.
Personal loans vs payday loans:
Payday loans let you borrow small amounts, usually up to $2,000 (occasionally $5,000), repayable within 16 days to 12 months. Fees are typically high to compensate for capped interest rates, which can make them expensive relative to the amount borrowed.
Personal loans generally carry lower rates and fees, with longer repayment terms. We’d always recommend exploring a personal loan before considering a payday loan.
Common types of personal loans
Most mainstream banks and lenders, along with specialist personal loan providers, offer the following:
Secured personal loans
You put up an asset you own, such as a car, as security. If you default, the lender can seize and sell it. Because the lender’s risk is lower, secured loans often come with better rates and fees.
Unsecured personal loans
No collateral required, but rates and fees are typically higher, and the lender can still pursue legal action if you default. Often easier to obtain, and usually still cheaper than most credit cards.
Overdrafts
A line of credit attached to your everyday transaction account for unexpected costs. Interest applies only to what you use below $0, plus any establishment or ongoing fees. Best used sparingly rather than as a regular buffer.
Line of credit loans
A pre-agreed limit you can draw on anytime, paying interest only on funds used. Convenient, but usually at a higher rate than other personal loan types.
Debt consolidation loans
Combine multiple debts, like credit cards and car loans, into a single loan, ideally at a lower overall rate, so you’re managing one repayment instead of several.
Student & guarantor loans
Available to Australian residents over 18 studying at university or TAFE, covering things like textbooks, a laptop, or transport. Repayment can often be deferred for up to five years. If affordability is a concern, applying with a guarantor, such as a parent, can help secure a lower rate.
Paying off your loan
Make sure funds are available in your account when repayments are due, to avoid a missed payment fee.
A simple budget goes a long way toward staying on top of repayments, and can help you plan extra repayments to clear the loan sooner.
Before making extra repayments, check whether your loan has an early exit fee.