A finance broker handing over personal loan documents to be signed.

How to Choose the Right Personal Loan for Your Financial Goals

Are you considering taking out a personal loan? You might have something exciting on the horizon, like an overseas holiday, a new car, or home renovations — or maybe you’re looking for a convenient way to consolidate your debt.

No matter the reason, choosing the right personal loan for you can be overwhelming. There’s so much to consider, plenty of lingo to work out —like variable rates and secured loans— and with so many different lenders out in the market, there’s a lot of choice.

So, how do you find the best personal loan for you? We’re an independent finance broker with more than 18 years of experience in the loan market, and we’re going to take you through it all.

What we’ll cover

  • What are personal loans for?
  • How do personal loans work?
    • 1. Application
    • 2. Approval & loan terms
    • 3. Disbursement of funds
    • 4. Loan closure
    • Secured vs unsecured personal loans
    • Fixed rate or variable rate?
    • Does your credit score matter in Australia?
  • How do you find the best personal loan for you?
    • Take a look at your financial situation
    • How much do you need?
    • Speak with a finance broker
  • What to consider as you compare personal loans
    • Interest rate
    • Fees
    • Loan terms
    • Read the fine print
  • Make an informed decision

What are personal loans for?

Personal loans are exactly that — personal. It’s where you borrow an amount of money to pay for something personal. 

Here are some of the common uses for personal loans.

Debt consolidation

One of the most common uses of personal loans is to consolidate multiple debts. Say you have credit card debt, a small loan, and a few other bills you owe money on. A personal loan allows you to consolidate these debts and simplify how you pay them off. It’s one owing amount with a single monthly payment and sometimes means a lower interest rate overall.

Home renovations and repairs

People often use personal loans to fund home improvements. For a major renovation or an essential repair, a personal loan is perfect for funding these projects without adding to (or getting) a home loan.

Vehicle financing

You might purchase a vehicle using a personal loan instead of a car loan. This is often used for used cars or cars that don’t qualify for a ‘secured’ car loan (we’ll explain the difference between secured and unsecured loans a little further down in this article). 

Medical expenses

Unexpected healthcare costs can be a burden, and personal loans can help cover these expenses, allowing for the payment of medical bills over time.

Travel and holidays

Personal loans can also fund travel plans, such as a dream vacation or visiting family and friends abroad, allowing you to spread the cost over time.

Wedding expenses

With the high costs associated with weddings, many couples opt for personal loans to cover the expenses of their big day, from the venue to the honeymoon.

Emergency expenses

For unexpected financial needs, such as urgent home repairs or emergency travel, a personal loan can offer the money you need in a tight situation.

Other large purchases

This includes buying high-value items like furniture, appliances, or electronics, especially when savings aren’t sufficient to cover the cost upfront.

How do personal loans work?

Personal loans are where a bank or financial institution lends you an agreed amount of money with an agreement in place for you to pay it back with interest. Here’s how it works:

  1. Application

You’ll apply for the loan, either through a finance broker or directly with the financial institution. Here, you’ll supply details about your identity, income, employment and credit history.

  1. Approval & loan terms

If your application is approved, the lender will offer you a loan with specific terms. 

This includes the interest rate, which can be either fixed or variable (we’ll unpack the pros and cons of each a bit later in this article). The rate you’re offered depends on factors like your credit score, income, and the loan amount. 

Generally, higher credit scores lead to lower interest rates. Personal loans have a set repayment period, which typically ranges from one to seven years in Australia. The loan term affects both your monthly repayment amount and the total interest paid over the life of the loan. 

You’ll be required to make regular repayments, typically monthly, but these can be weekly or fortnightly, too, to pay back the borrowed amount plus interest. These payments are usually fixed for the term of the loan, especially if you have a fixed interest rate.

Your loan terms will also detail any additional fees or charges you may incur for late payments or additional payments on your personal loan.

  1. Disbursement of funds

When everything is agreed on, and any relevant agreements are signed, the funds will be released. This may be directly into your nominated bank account or to a different institution, depending on the reason for your loan.

  1. Loan closure

Once you have fully repaid both the principal amount and the interest, your loan will be closed. Some lenders allow extra repayments or early loan closure without penalties, but this varies between lenders.

Secured vs unsecured personal loans

A secured loan is where the loan amount is ‘secured’ against an asset or collateral. So, with a home loan, the loan amount is secured against the house. Meaning that if you can no longer repay your home loan, your lender can use the value of your home to get that amount of money back. 

Unsecured personal loans are typically the norm. It means they are not secured against an asset or collateral, and if you can no longer repay the loan, the lender will likely take legal action to get that amount of money back.

An unsecured loan typically comes with a higher interest rate and smaller borrowing amounts.

Fixed rate or variable rate?

A fixed rate is where your interest rate is ‘fixed’, meaning it won’t go up or down.

A variable rate is where your interest rate can change with fluctuations in the market and interest rates.

A fixed rate offers the benefit of predictability — you know exactly what your interest rate will be for the term of your loan. These rates usually have restrictions in that you’ll be limited to how many extra repayments you can make and if rates do fall, yours will stay the same.

Variable rates offer the benefit of flexibility. You can generally make as many extra payments as you like without incurring fees or penalties. However, if interest rates hike, your rate will certainly increase, too.

You’ll need to consider your priorities here and take a good look at the market trends and conditions.

Does your credit score matter in Australia?

Yes. Your credit score shows lenders your ability to pay money back and impacts your ability to borrow. 

It’s not just that, though. Your credit score will affect the interest rate you’re given and your loan terms. The better the score, the better the interest rate, typically.

Credit scores are typically calculated based on your credit history, which includes factors like your repayment history, the amount of credit you’ve used, the length of your credit history, the number of credit applications you’ve made, and any defaults or bankruptcies.

How do you find the best personal loan for you?

Everyone is different, and different personal loan products and lenders will suit different borrowers. Here’s what you should consider when finding the best personal loan for you.

Take a look at your financial situation

Before you rush out and start talking to lenders and brokers, step back and take a look at your financial situation.

What’s your regular income looking like? Do you have existing debts? What about your credit score?

It’s important to create a ‘bigger picture’ before adding additional debt to your plate. By understanding what you need and what you can afford, you can better understand how loan terms affect you and your specific situation.

For example, if you need a car and a personal loan is the way to make that happen, but your budget is tight, a fixed rate might be best for you so you can avoid the stress of a volatile rate.

How much do you need?

Determining exactly how much you need seems like an obvious step, but it can be overlooked. 

Rather than speaking with a broker or lender and taking the largest personal loan available to you, really consider what you need.

Do the maths now to get an accurate idea and avoid paying unnecessary fees and interest later down the track.

Speak with a finance broker

Consulting with a finance broker can be an invaluable step in finding the best personal loan for your needs. 

As a finance broker, we have access to a wide range of loan products and can help you navigate this really complex landscape of personal loans. 

We’ll provide insights into different loan options that align with your financial situation and goals. As well as that, we’ll walk you through the fine print, comparing interest rates, and identifying any hidden fees. 

We’ll also take you through the application process, making it smoother and increasing your chances of approval. Remember, we work for you, not the banks — it’s our goal to find the best fit for your specific situation.

What to consider as you compare personal loans

When comparing personal loans, it’s important to look beyond just the advertised interest rate. 

Look at the features, evaluate each loan’s flexibility, like the ability to make extra repayments, and consider how these features match your financial habits and goals. 

Consider the lender’s reputation and customer service record, too, as this can impact your overall borrowing experience.

This comparison process is about making sure you’re getting a competitive deal. Here are the main things to look out for when comparing personal loans.

Interest rate

The interest rate is one of the most significant factors that will affect the overall cost of your loan. A lower interest rate can result in significant savings over the life of the loan. 

It’s important to understand whether the rate is fixed or variable. We touched on this earlier, but a fixed rate offers stability, as your repayments won’t change over the loan term, which can be helpful for budgeting. 

A variable rate, on the other hand, can fluctuate, potentially offering savings if rates decrease but also presenting a risk if rates rise. 

Really think about how the interest rate type aligns with your financial situation and appetite for risk.


Fees can add a substantial amount to the cost of your loan. Common fees include establishment fees, monthly account-keeping, and early repayment and late payment fees. 

But not every loan will have all of these fees.

Factor in these potential costs when comparing loans, as a loan with a lower interest rate but high fees might end up being more expensive than a loan with a slightly higher interest rate but lower fees. 

Always calculate the total cost of the loan, including all fees, to get a clear picture of what you’ll actually be paying.

Loan terms

When examining the terms of a personal loan, it’s important to focus on more than just the repayment period. The terms of a loan encompass various conditions and clauses that specify how the loan operates. 

These include the repayment structure, the flexibility for additional repayments, any penalties for early loan settlement, and the procedures for handling late payments. 

Understanding these terms is really important, as they can have a significant impact on your financial flexibility and the total cost of the loan. 

Consider how these terms fit with your budget and whether they offer you the right balance between immediate affordability and long-term financial efficiency.

Read the fine print

Reading the fine print is absolutely essential when comparing personal loans. The terms and conditions document will contain important information about your rights and responsibilities, along with the lender’s. 

Look for details on how interest is calculated, any penalties for late payments, and the lender’s policy on extra repayments or early loan closure. 

Understanding these terms can help you avoid unexpected costs and ensure that the loan fits your expectations and financial plans. Don’t forget, you’re allowed to ask the lender for clarification if anything is unclear.

Make an informed decision

When it comes to choosing the right personal loan for you, the key is to make an informed decision that really suits you and your financial situation and goals. Take the time to thoroughly assess your needs and financial capacity. 

Compare different loan options and consider all those different factors, like interest rates, fees, loan terms, and the lender’s terms and conditions. 

By being well-informed and considered in your approach, you can select a personal loan that not only meets your immediate needs but also contributes positively to your long-term financial health. 

A little bit of research and thought now can save you a lot of money in the long-term.

Chat with our personal loans team today.

Book a no-obligation discovery call with LendEasy today and find out what kind of personal loan you can secure.

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