Sometimes life doesn’t wait till you can afford it. The car breaks down, a medical bill appears out of nowhere, or you finally want to start that project you’ve been putting off for two years. This is where personal loans often come in – and if you’ve never taken one out before, the whole procedure might be a lot more complex than it has to be.
At Finiva we are largely involved in helping clients with personal loans. So here is a simple look at how they work, what lenders actually look at, and how to avoid overpaying for one.
What is a personal loan?
A personal loan is a sum of money that you borrow from a lender and pay back over a specified period of time, generally with interest, through regular payments. There’s a clear start date and end date, as opposed to a credit card. You know exactly what you’re paying and when it’s done. They are often used for things such as debt consolidation, medical expenses, weddings, travel, home improvements or unexpected costs that can’t wait.
Unsecured Personal Loans vs. Secured Personal Loans
That’s the first divergence.
Secured loans are guaranteed by an asset, such a car or some other valuable object. The lender has a safety net if repayments stop, thus interest rates are generally lower.
Unsecured loans do not require collateral and so are more flexible, but lenders do generally charge a little higher rate to reflect their risk.
Neither is automatically “better” – it depends on your situation, what you’re borrowing for, and how comfortable you are putting an asset on the line.
What Lenders Really Look At
All lenders are different, but most personal loan applications come down to the same fundamental factors:
- Income and job security – can you easily afford the repayments
- our credit conduct history – how you’ve handled credit and debt previously
- Existing financial obligations – additional loans, credit cards, or regular expenses
- The objective of the loan, and how much – certain lenders will be more flexible based on what the funds are for
Those with lower credit scores aren’t immediately disqualified either. Most lenders look at applications individually – especially when a broker can articulate your situation clearly and find you a lender that fits you well.
Why You Should Shop Around for Lenders
Rates on personal loans can differ greatly amongst lenders – sometimes by several percentage points on the same amount and length of loan. Just accepting the first offer you see, or keeping with your everyday bank out of habit, can end up costing you more over the life of the loan than it should. The big savings usually show up when you compare across a broader panel of lenders rather than approaching just one.
How long is the approval period?
After you submit your application and documents, approval times usually fall between 2 to 7 business days, depending on the lender, the complexity of your situation and how complete your paperwork is from the get-go. Having your documentation available – ID, proof of income, recent bank statements and details of any outstanding debts – makes things move a lot faster.
Bottom Line
A personal loan can be a genuinely beneficial tool when it’s matched to the correct lender and built around your actual situation — not just the first offer that appears in your inbox. That’s what a broker can do for you – less guessing, clearer terms and a loan that actually fits.
Frequently Asked Questions
What may I use a personal loan for?
It’s often used for debt consolidation, medical bills, home improvements, weddings, vacations and any other unforeseen needs. Some loans are for specific purposes, but most lenders will allow flexible use
What is the difference between a secured and unsecured personal loan?
A secured loan is backed up by an asset (like a car) and usually has a lower interest rate. An unsecured loan doesn’t require collateral, but the rate is usually a little higher to make up for the risk the lender is taking.
Can I get a personal loan with poor credit?
Yes, it is feasible. Many lenders will consider applications individually rather than solely on a credit score, subject to responsible lending obligations.
How fast can I get approved for a personal loan?
Indicative approvals usually take 2 to 7 business days depending on the quality of your documentation and the complexity of your application.
Is it better to get a personal loan from a bank?
Not always. A broker will shop around with many lenders, often coming up with better rates or terms than you’d find with just one bank, which can help you avoid spending too much interest.
Finiva are mortgage and finance brokers helping people and families across Australia access lending choices with confidence and transparency. Talk to us about your personal loan options.