A personal loan is a fixed-term loan for a set amount of money, usually repaid in regular instalments over one to seven years, and the way to choose one well is to compare the comparison rate and the total cost over the full term rather than fixating on the headline rate or the monthly repayment. Get those two habits right and most of the marketing noise around personal loans stops mattering.
This is general information, not personal financial advice. Your situation is yours alone, and a chat with a licensed financial adviser or a free financial counsellor is worth more than any article when real money is on the line.
What a personal loan actually is
Strip away the branding and a personal loan is refreshingly simple. You borrow a fixed amount, agree to a term, and pay it back in scheduled instalments covering both principal and interest. When the term ends, the debt is gone.
This differs from a credit card, where the balance revolves and the temptation to carry it never quite leaves. A personal loan has a finish line baked in, which is part of its appeal. It also differs from a home loan, which is far larger, runs for decades, and is secured against property. If you are weighing a much bigger borrowing decision, our guide on how much you can borrow covers the serviceability side in more depth.
Common uses are predictable and sensible: a car, a renovation, a wedding, medical bills, or rolling several smaller debts into one. The loan is just a tool, and like any tool it is only as good as how you use it.
Secured versus unsecured
The first real fork in the road is whether the loan is secured or unsecured, and it changes both the rate and the risk.
An unsecured personal loan has no asset attached. The lender is relying on your promise to repay and your credit history, nothing more. With no collateral to fall back on, the rate is generally higher. The upside is flexibility: you can use the money for almost anything, and you are not putting a specific asset on the line.
A secured personal loan is tied to an asset, most often a car, sometimes a term deposit. If you stop repaying, the lender can claim the asset to recover what it is owed. That extra protection usually buys you a lower rate. The trade-off is real, though, and worth saying plainly.
A secured loan is cheaper because you, not the bank, are carrying more of the risk.
For a new car specifically, a secured car loan is the usual path, but it is not the only one. Depending on your circumstances and whether you are employed in the right kind of arrangement, a novated lease can be worth comparing against a straight loan before you commit.
What rates look like in 2026
Personal loan rates sit well above home loan rates and well below credit cards and payday lending. They also vary widely from one borrower to the next, because your credit profile and whether the loan is secured both push the number around.
The ranges below are indicative only and were last checked in June 2026. They are not quotes or offers, and the rate you are actually presented with could land outside these bands depending on the lender, your credit history, and the size and term of the loan. Treat them as a rough map, not a price list.
| Loan type | Typical rate range (indicative, comparison) | Notes |
|---|---|---|
| Secured personal loan | High single digits to low teens % | Lower rate, asset on the line |
| Unsecured personal loan | Low teens to high teens % | No collateral, rate set by credit profile |
| Higher-risk unsecured | High teens to low twenties % | Weaker credit history, smaller lenders |
| Payday / small-amount loans | Far higher again | Avoid where a mainstream loan is available |
Two things to hold in your head. A strong credit score tends to pull your offered rate toward the lower end of each band, while a thin or patchy history pushes it up. And the gap between the bottom of the secured range and the top of the unsecured range is wide enough that it genuinely pays to know which one you are applying for and why.
How to compare offers properly
This is where most people leave money behind, so it is worth slowing down. Four things matter more than the big number on the ad.
Compare the comparison rate, not the headline rate
The headline rate is the interest rate alone. The comparison rate folds in the interest plus most standard fees, expressed as a single percentage, so it gives you a fairer like-for-like figure across lenders. A loan with a tempting headline rate and fat fees can easily cost more than a plainer one. Always line up comparison rates side by side, and when you are ready to do that across a few lenders, you can compare personal loans as a starting point rather than judging any single offer in isolation.
Fixed versus variable
A fixed rate locks your interest, and therefore your repayment, for the life of the loan. That predictability makes budgeting easy and is the more common choice for personal loans. A variable rate can move up or down, which means your repayments can too. Neither is automatically better. Fixed buys certainty, variable buys flexibility. Pick the trade-off you can actually live with.
Fees, especially the ones at the exit
Establishment fees, ongoing monthly fees, and crucially any early-repayment or exit fees all deserve a look before you sign. Early-repayment penalties are the sneaky ones. If there is any chance you will pay the loan off ahead of schedule, a loan that charges you for the privilege is quietly more expensive than it appears. Read that clause specifically.
Total cost over the term, not the monthly repayment
Here is the trap dressed up as a kindness. Stretching a loan over a longer term lowers the monthly repayment, which feels like relief, but it usually means you pay more interest in total. A loan can have a comfortable monthly figure and still be the dearer option once you add up every dollar across the term. Always ask for the total amount repayable. That number tells the truth the monthly figure hides.
What to avoid
Avoid payday lenders and very-high-rate, small-amount lenders wherever a mainstream personal loan is open to you. They are dramatically more expensive, the fee structures are punishing, and they are built around urgency rather than your long-term interest. If your credit history is making mainstream lenders nervous, a free financial counsellor is a far better next call than a high-cost lender, and the service costs you nothing.
Be wary, too, of borrowing more than the job actually requires simply because you have been approved for it. An approval is a ceiling, not a target. And resist judging a loan by how painless the monthly repayment sounds. That is the figure designed to win you over, which is exactly why it deserves the least of your trust.
The bottom line
A personal loan is a straightforward, fixed-term way to borrow a set amount, and it can be a genuinely sensible tool for a car, a renovation, a wedding, or consolidating messier debt. The deciding factors are not glamorous. Compare the comparison rate, choose fixed or variable on its merits, hunt down the fees and especially any early-exit penalty, and weigh the total cost over the term rather than the monthly repayment that is engineered to feel comfortable. Steer clear of payday and very-high-rate lenders when a mainstream loan is within reach. The figures here are indicative and were last checked in June 2026, so confirm the current numbers with lenders directly, and for a decision that affects your finances meaningfully, speak to a licensed adviser before you sign anything.