Types of Personal Loan

When you're short on funds, a personal loan can help you reach your financial goals. There are different types of personal loans that can especially help with large expenses, so selecting the right one depends on your needs and financial situation. 

Personal loans are a flexible financing option that give borrowers a lump sum of money to be repaid through fixed or variable monthly payments. 

Common uses include:

• Vehicle purchase: From new cars to used motorcycles, vehicle loans are one of the most common types of personal loans.
• Home improvements: Renovations to the home like kitchen remodels, bathroom updates, or adding eco-friendly features like solar panels.
• Medical expenses: Procedures and treatments not covered by Medicare. 
• Life events: Wedding, holiday, or education expenses. 
• Debt consolidation: Combining multiple debts into a single, more manageable debt consolidation loan.
• Emergency expenses: Unexpected repairs or urgent financial needs.

Secured personal loans

A secured personal loan requires you to put up an asset as security to borrow money from the lender. You can offer valuable items as collateral, usually your car, house, or even valuable items like jewellery. While this means the lender can take possession of your asset if you fail to make repayments, it also comes with some benefits.

Key advantages of secured loans include:

• Lower interest rates and fees due to reduced lender risk
• Higher borrowing limits often available
• Longer loan terms typically offered
• Easier approval process from reputable lenders.

Unsecured personal loans

An unsecured personal loan doesn't require any collateral, making it an excellent option if you don't have significant assets or prefer not to risk them. Instead of security, lenders will assess your application based on your income, credit history, and ability to make repayments.

While unsecured loans can typically have higher interest rates than secured loans, they still usually offer better rates than credit cards. They also often provide more flexibility in how you use the funds.

Line of credit personal loans

An overdraft or line of credit personal loan is handy in the case of an unexpected emergency. It allows you to overdraw your account to an agreed amount established by the bank. You only pay interest on the money you use, not on the maximum you can borrow.

Features include:

• Draw funds as needed up to your limit
• Pay interest only on the amount used
• Revolving credit facility
• Ongoing availability for emergencies.

Student personal loans

Many lending institutions recognise the financial burden university students are under by offering assistance in the form of a student loan. This loan can help purchase a laptop, textbooks and other educational expenses.

Many student loans offer features such as:

• Lower interest rates compared to standard personal loans
• Deferred repayment options
• More lenient income requirements
• Flexible terms designed for study periods.

Fixed rate personal loans

With a fixed interest rate, your repayments stay the same for the entire loan term, making it easier to budget. You won't be affected by rising interest rates, but if rates decrease, you won't benefit from those lower rates. This stability does come with some trade-offs: fixed-rate loans can have higher rates compared to variable-rate options and include penalties for early repayment.

Variable rate personal loans

Variable rate loans provide more flexibility and can come with lower initial rates and fees in many instances. Your repayments will vary as interest rates change, which can benefit you if rates decrease, but could be stressful if they increase. Generally, these loans also offer more flexible repayment options and impose fewer penalties for early repayment.

When selecting a personal loan, your financial situation and borrowing capacity are crucial considerations. Use a personal loan repayments calculator to get an idea about potential repayments and where they fit within your budget. You should also consider the loan term carefully -- while longer terms mean lower monthly payments, they usually mean paying more interest over time.

Important features to look for include:

• Ability to make extra repayments without penalty
• Redraw facility for accessing additional payments you've made
• Flexible repayment schedules
• Competitive interest rates and reasonable fees
• Loan terms that match your needs

If you're ready to check out loan providers, then head over to our personal loan or car loan hub page and compare some of the lenders we track.