Compare Unsecured Personal Loans - Australia

Unsecured personal loans can be a good option if you don’t have any assets to give up as security if you can’t repay your loan. But how are you meant to pick one that’s suitable?

Choosing a loan shouldn’t be so hard. That’s why we put together this guide — so you have info and tools to help you compare a range of unsecured personal loans and select one that works for you.

An unsecured loan is a financial credit product that provides you with credit to spend on any of a wide range of products and services — just like any other kind of personal loan. The unique feature of this kind of loan is that you don’t have to offer up an asset as security.

What’s a security? Loan security is basically proof that if you can’t repay your loan, the lender will be able to recover some or all of the funds they lent you by claiming then selling your asset. When you offer an asset as security, you’re basically saying ‘if I can’t pay my loan back, you can sell this thing to get your money back’. That’s all well and good, but if you don’t own anything of value to your lender, an unsecured loan could be an option because you don’t have to secure it with an asset.

The trade-off is that, in many cases, the interest rate may be higher with an unsecured loan than it would be if you were to get an equivalent secured loan.

Unsecured personal loans work much like other kinds of personal loan products. You submit an application (which is very similar to applying for a secured loan, except that you don’t have to provide details of any security). The lender reviews your credit history, whether you have any other debts (e.g. credit cards), and a few other facts about your financial situation like your income and expenses. And then it’ll decide whether it’s happy to take on the risk of lending you money and if so, how much it’s willing to lend and at what interest rate. Because unsecured loans are a higher risk for lenders, they tend to have more stringent lending criteria for these kinds of loans.

Once it’s decided to offer you a loan, the lender will then allocate an interest rate, usually based on a range of factors including the amount of risk it’s taking. Because you’re not providing any collateral to secure the loan, as noted above, the bank will likely provide a higher interest rate. It may also offer a smaller loan amount. The upshot of all this is that the total cost of the loan will likely be higher than for an equivalent secured loan.

Once you’re sure an unsecured personal loan is a suitable kind of loan for you, it becomes time to compare a range of various options available to you. Unfortunately, there’s no single best unsecured personal loan because everyone’s financial situation and needs are different. What might be an advantage of a specific unsecured loan for one person, might be a disadvantage for someone else.

So, one way to pick a suitable unsecured personal for you is to compare a range of options in the context of what you need and what you want to achieve. Our main personal loan comparison page includes a detailed guide to comparing personal loans. You can add these questions into the mix for comparing unsecured loans:

• Does your income fluctuate? Some products will allow you to make additional repayments without a penalty when your income is high, and to redraw some of that money (with a redraw facility) if challenging expenses arise. If your income is particularly variable, you might value these kinds of features more highly.
• Does uncertainty cause you particular stress? If so, you might prefer a fixed interest rate because then you’ll always know what your repayments will be.
• Do you anticipate an ability to increase your repayments during the life of your loan? If so, you may be able to reduce the overall cost of the loan by making extra repayments or by paying the loan off early. If you apply for a variable rate unsecured loan, that’s not likely to cause any issues. However, fixed rate loans can be a different story. They usually charge early repayment fees, which could make such a loan more expensive and less desirable in that situation.
• How does the comparison rate compare to the interest rate? All personal loans have additional fees and charges, but unsecured loans may be prone to hefty added fees. And where you have high fees, you have an opportunity for lenders to differentiate their products from those of their competitors. The comparison rate demonstrates some of the regular fees payable, simplifying the comparison of products based on a combined percentage including those fees, rather than just the interest rate. As a result, there can be quite a big difference between the comparison rates of various loan options. Looking at the difference between the comparison rate and interest rate can give you a good idea of how significant the impact of the fees is on the overall cost of the loan. You’ll still need to carefully review the fee amounts and terms of those fees as comparison rates don’t include all fees, and not all the fees may be relevant to your situation. But it’s a good place to start.

There’s no way we can tell you exactly how to pick your ultimate unsecured personal loan. Instead, we’ve given you jargon-free facts to help you understand how unsecured loans actually work. And then we’ve laid out simple, easy-to-follow questions to help compare a range of options, so you have tools to help choose an unsecured personal loan that’s suitable for your needs.