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Personal Loans 101: What You Need to Know

Jul 21, 2022 | Insights

Borrowing money can be one of the most exciting financial decisions you make, particularly if it’s to help realise a travel dream, marry your soulmate, move into your first rental or simply make life easier for yourself by consolidating high interest debts.
If it’s your first time taking out a personal loan, or if it’s simply been a while since you’ve had one, you may be foggy on the details of how it all works.
Give yourself a personal loan knowledge boost as we deliver the low down on (almost) everything you need to know about borrowing money with a personal loan.

What are Personal Loans?

Personal loans are loans that you can take out with a bank, credit union, non-bank lender, online lender or other credit provider for a personal expense. if approved, they’re usually paid in a lump sum to you — often directly into your bank account. A lot of people like to use personal loans to:

Who is eligible to apply for a Personal Loan?

To be eligible to apply for a personal loan, you need to be at least 18 years old and have some form of regular income. Often, people who are receiving government benefits, who work casually, are self-employed or have a poor credit history find it difficult to fit the lending criteria of traditional lenders.

Being turned away from borrowing money can not only be incredibly disappointing, but declined applications can further affect an already delicate credit score. At Finance One, we know that life isn’t always predictable, which is why we’re committed to helping Aussies solve their finance problems and give them a second chance at finance wherever possible.

Did you know

if you’ve never had a credit check performed on your details (such as when you apply for a post-paid mobile phone plan, buy-now-pay-later account or credit card), chances are that you won’t have a credit score. Having no history on your credit file is often viewed as higher risk than someone with an excellent credit history because you’ve not yet proven that you’re a trustworthy borrower who can demonstrate credit worthiness.

Finance One has in the past helped many Australians who have no credit history, access finance for the first time!

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How do Personal Loans work?

When you take out a personal loan, you’re borrowing money from a lender (such as Finance One) and agreeing to repay that money over a certain period of time, in accordance with your signed Loan Agreement. The amount you need to pay back will be however much you’ve agreed to borrow (your ‘loan amount’ or ‘principal’) plus interest and fees.
Interest applies in two different ways, depending on what financial product you have, or what financial situation you are in, for example:
1. If you have money saved up in the bank, you may be paid interest as a kind of reward for saving your money with that particular bank or financial institution.
2. However when you borrow money from a credit provider, you will need to pay interest to that credit provider. Some people think of paying interest as ‘the cost to borrow money’.

How much money can you apply to borrow through a Personal Loan?

When you first apply for a personal loan, you will have a general idea of how much money you need. Finance One offers personal loans from $5,000-$25,000*. How much you can apply to borrow will depend on a number of factors, such as your income and your living expenses.
Your loan amount may not always end up being what you asked for. After assessing your application, if you’re approved, your lender may offer a lower loan amount, or could potentially even offer more than what you’ve asked for!

If you’re interested to find out how much you could pre-qualify to borrow, then chat with our friendly personal loan specialists.

Personal Loan terms

Most lenders offer personal loans that you can repay from one year, anywhere up to seven years. Deciding on how many years you’ll take your loan over will depend on your personal circumstances and financial situation. Generally, the longer your loan term, the lower your loan repayments will be at your monthly instalments, but this means you might repay more in the long run because you’ll be charged interest on the balance for a longer period.

Repaying Personal Loans

The benefit of accessing a loan for large purchases or expenses is that you can repay the amount in small increments over time, which can help make the expense more manageable. Most loans will have a set monthly payment that’s required, which typically includes interest and fees too.
Some lenders will also offer weekly or fortnightly repayments, in case working things out on a monthly budget and making monthly payments isn’t the best fit for you.Talk to Us Now

Can I repay the loan sooner?

Being able to pay your loan off quicker than the term you’ve selected can be wonderfully rewarding, especially if you’ve taken out a loan for debt consolidation. Some lenders don’t allow early repayment or may even charge an early repayment fee for paying off the loan quicker.

At Finance One, we provide you with the flexibility to make extra repayments or increase your repayment amount at any time — and you won’t be penalised for paying off your loan early with a Finance One Consumer Personal Loan.

Call us today on 1800 346 663 to find out how we may be able to help you!

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Unsecured loan vs secured loan

With a secured loan, the borrower offers one of their assets (often a car) as security for the loan. If they do not repay their loan, the lender can legally claim the security asset.

An unsecured personal loan simply means that the lender is offering money without having a legal claim over one of the borrower’s physical assets. They have no extra security to fall back on if you can’t repay the loan. Most personal loans are unsecured, but loans such as car loans or home loans are secured loans.
Unsecured personal loans give you the flexibility to use the funds on whatever you choose, but you might pay slightly higher interest than on a secured loan.

Fixed interest rate vs variable interest rate

The interest rate that you’re charged on your personal loan will either be a variable interest rate or a fixed interest rate. Variable interest rates mean that the lender has the right to change the rate over the life of your loan, such as if the Reserve Bank of Australia (RBA) changes interest rates. This means that your interest rate could go up or down over the time you have your loan.

On the other hand, a fixed interest rate remains stable over the life of your loan. Fixed rate loans can be a good option for borrowers who like to have consistency with their budget but can mean that you might miss out on any rate cuts that occur.

Top tip

Consolidating debt with a personal loan may be a beneficial way to find cost savings for your high interest debt.

Frequently asked questions about Personal Loans

We answer some commonly asked questions around personal loans.
What are comparison rates?

Comparison rates are a way to be able to compare different loan products against each other. A comparison rate will take into account the fees and charges in a loan, and many people rely on a comparison rate to choose the best personal loan for them.

Unfortunately, what a comparison rate doesn’t do is take into account your personal financial information, such as a poor credit score. What this means is that what seems like the best deal at first glance may not actually be the best option for you.

What interest rates can apply to a personal loan?

How much interest you can pay will vary from loan to loan, but will generally be determined by the current cash rate set by the RBA, as well as the strength of your application.

What is a credit check?

A credit check is when a lender checks your credit report with a credit reporting agency, to determine how creditworthy you’ve shown yourself to be in the past. This is called your credit history. Your credit rating can be affected by credit enquiries, and even missed payments on an existing loan or existing debt as well. Learn more about what’s in your credit report.

Applying for Personal Loan with bad credit


If you’re considering applying for a personal loan, but think that your credit score leaves a lot to be desired, or you’re simply unsure how your situation might affect your chances of approval, speak with the team that takes a personal approach to helping everyday Aussies find an appropriate finance solution.

*Personal Loans above $15,000 must be secured.

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Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent advice regarding your legal, financial, taxation or other needs, to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information. All loan applications are subject to normal lending criteria. Fees and charges payable. Terms and conditions apply.

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Makala Elliott

Makala is the Marketing Manager at Finance One. She has worked in the Finance and Lending industry for over 10 years, gathering a wealth of experience. She is passionate about helping Australians get back on track with their finances by passing on her knowledge.

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