What is a personal loan?
A personal loan is a sum of money that you borrow from a lender - like a bank, credit union, or non-bank lender like Plenti - and repay over an agreed upon time period. All personal loans carry an interest rate. Some interest rates are fixed for the life of the loan, but others have variable rates.
With a personal loan you can borrow between $2,000 and $50,000 across 6 months to 7 years. However, there are some lenders that offer up to $100,000 for individual or joint applicants. In addition to a set repayment schedule, some lenders will also allow you to make early repayments. This gives you the flexibility to reduce the time to repay your personal loan, meaning you save on interest costs.
Low-rate personal loans can be more cost-effective than other types of finance. Each lender will offer different interest rates that you have to pay on the amount you owe. When comparing against other sources of finance, (e.g. credit card, line of credit, home loan top-up), it’s worth checking carefully for any fees and the amount of time you have to pay back the loan when comparing against other sources of finance (e.g. credit card, line of credit, home loan top-up).
Interest rates and comparison rates can sometimes hide the true cost of a loan. Your monthly and total repayments provide a clear basis for comparing the value of personal loans from different lenders.
Uses for personal loans
Personal loans are designed to be flexible, providing you with a high degree of choice as to how you use your funds. That being said, you will need to share your loan purpose with your lender when you apply. This loan purpose will be taken into account when considering how suitable a personal loan is to your situation and the maximum amount your lender is willing to offer you.
Based on a recent review of Plenti personal loans, there are seven loan purposes that Australians borrow for more than any other:
- Debt consolidation (25%)
- Home improvement (22%)
- Buying a car (18%)
- Solar panels and home batteries (13%)
- Travel & holidays (5%)
- Medical & dental fees (2%)
- Weddings & honeymoons (2%)
Each lender will have its own criteria for assessing loan purpose, so it’s important you make sure your purpose is clear before you apply. For example, things like tax bills, court fines or penalties and margin loans are unlikely to be acceptable purposes to lenders for a personal loan. Neither are borrowing for overseas transfers, gambling, weapons, savings or for anything deemed to be illegal. Rest assured, however, if you have a genuine purpose for the funds and a demonstrated ability to repay you will find a lender to suit your needs.