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What is a personal loan?

Personal loans. They’re loans to help people get what they want sooner.

30 Sep2020

If you need to purchase something that’s just beyond your current reach, a personal loan is designed to give you some freedom and flexibility so you can get your hands on it a bit sooner.

There are all sorts of personal loans out there and there are plenty of reasons to want to borrow money. Chances are, if you’re reading this, then you’re probably thinking about borrowing some money yourself! We’re sure that you’ve got loads of questions, so let’s start off with answering a few of the basics and go from there.

We’ve started simple just below, but we’ve also got a bunch of other articles about personal loans to read when you’re done with this one. Now, let’s get into it.


Personal loans 101

A personal loan is generally considered a smaller loan (as compared to a home loan) that’s intended to help you purchase something you want, but don’t have the savings for just yet. People often borrow money like this for a holiday, new car, or to do some home renovations.

The benefit to you, the borrower, is that you get a financial injection now, so you can get the things you want sooner. The downside is that this isn’t free money, so you’ll need to pay the loan back, plus interest and possibly some fees, over time.


What can I get a loan for?

Say you’re dreaming of an expensive holiday, or you want to buy a new car — but you don’t have the savings you need right now. With a personal loan, you can borrow some money now and go on that holiday or buy that new car, then pay back your lender over a period of time in instalments (repayments).

You don’t need to purchase something as exciting as a holiday to borrow money — although, of course, that depends on your idea of excitement. You can apply for a small loan to buy a new fridge, a new bed, or to pay mechanic’s bills if you’ve been neglecting your poor old car for a bit too long.

Keep in mind, there are limits to how much you can borrow from a lender. If you’re curious and want to know more about borrowing limits and criteria, read our article on how much you can borrow for a personal loan.


Some basic differences between personal loans

Two of the most common sets of terms that differentiate personal loans are: (1) secured vs unsecured and (2) fixed vs variable interest rates.

Introduction to secured vs unsecured loans

We have an entire article dedicated to the differences between a secured and unsecured loan, but in a nutshell: for secured personal loans you offer up an asset you already own (for example, a car or motorcycle) as security, while for an unsecured loan you do not provide security over an asset.

Offering a security can potentially earn you a lower interest rate, but it depends on the terms of the loan.

Introduction to fixed vs variable interest rates

When you take out a personal loan, you have to pay back more than just the amount you borrowed — you’ll have to pay off interest as well. The main types of interest rates are fixed and variable.

If you take out a loan with a fixed interest rate, your repayments won't change for the life of the loan. This lets you predict and plan how much will come out of your bank account each month. The downside is that if interest rates fall, you won’t benefit and your interest rates will stay where they are.

With a variable interest rate, your repayments will change when the interest rate changes. If interest rates go up, your repayments will unfortunately go up too. However, if interest rates drop, your repayments will likely go down as well (yay!). We offer a personal loan with a variable rate option, where interest is fixed for the first five years, then reverts to a standard variable rate for the rest of the life of the loan.


Who are personal loans for? Is one right for me?

If you’re in a healthy financial position and can reasonably expect to pay off your loan without issue, you may consider applying for a personal loan when you need one. Remember: a personal loan can be a handy tool for providing flexibility, but they only suit people who can afford to repay them.

No lender can ever guarantee a personal loan for everyone and you should be aware of the implications of payday loans, which are small short-term loans that typically have more fees attached. We do not offer payday loans. Remember, not every loan will suit every individual and not every individual will suit getting a personal loan. There are lots of criteria to meet before you can even apply for a personal loan; plus, once you have applied, it’s not guaranteed that your loan will be approved.

All of that said, if you have a healthy credit report with few or no overdue payments, as well a steady income and healthy savings, there are far fewer obstacles in your way. If you think that sounds like you, we have a handy calculator to estimate your borrowing power and loan repayments that you can try out. Just remember: any loan is a big commitment.

It’s worth noting that lenders like us have strict legal obligations to comply with, including to ensure we lend money responsibly. As a lender, it’s our responsibility to match a member with the right loan based on their circumstances.

If you already have a loan with us, but you’re thinking of applying for a personal loan because you’re finding it hard to stay on top of your finances, please get in touch by calling (08) 8124 2148 or emailing us at [email protected].

If you’re experiencing financial difficulty, we’ll consider how we can assist you to manage your loan repayments with us. Financial difficulty can be caused by a number of things including:

  • unemployment or reduced income
  • injury or illness,
  • domestic violence,
  •  natural disaster, or
  •  relationship separation.

We can also provide you with details of financial counselling service providers who can provide you with a range of services to help you navigate your way through your financial situation.

Can you get a joint personal loan?

As they say, sometimes two are better than one. For some people, it makes more sense to apply for a personal loan in partnership with someone else, rather than apply alone. If both parties will benefit from getting the loan, it might be worth looking into.

In most cases, lenders like us require for joint applicants to be relatives or similar — like a spouse, parent, or sibling. It takes a lot of trust and shared-responsibility to go into debt with someone and it’s not a decision to be made lightly.

If you enter into a joint loan with a co-borrower, you need to keep in mind that each of you are liable for the loan, separately and together (that is, jointly). You’ll be responsible for all loan repayments if your co-borrower can’t make repayments. Before you enter a joint loan, you’ll want to make sure that your co-borrower is reliable and can meet the repayments too. Nobody wants to end up paying for a joint loan alone.


I want to apply for a personal loan, where do I get started?

Before you start shopping around and applying for a personal loan, you’ll want to make sure you know as much about them as possible. We have a number of articles for you to read, but we recommend checking out this one about how long it takes to apply for a personal loan next. Always make sure to read the terms and conditions that apply to your loan.

If you’ve already done your research and want to apply for a personal loan sooner rather than later, you can check out People’s Choice’s personal loans to compare rates and fees now.


This article is for information only. Any views expressed are the views of People’s Choice Credit Union solely. This information must not be relied on as a substitute for financial planning, legal, tax or other professional advice.

How much can I borrow for a personal loan?

If you're thinking of applying for a personal loan from any lender, try to get a feel for how much you might be able to borrow, depending on your individual circumstances. 

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