Personal loans are taken out for personal reasons. They can help you pay for something special like a holiday or home renovations, or to consolidate your debt (although that’s not always a good idea).

While personal loans usually have lower interest rates than credit cards, they’re still high compared to other types of credit. Make sure you understand their risks and always check the terms and conditions of your contract before you sign.

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Things to consider when taking a personal loan


High costs

A personal loan can sound good because it may offer a lower interest rate than other types of credit, plus repayments are spread over a long time. But keep in mind that the longer your loan term, the more you pay in interest.

When comparing loans, make sure the term is the same for each loan so that you’re accurately comparing interest rates.


Make sure you can afford to borrow and then shop around to get the best deal on interest rates, fees and charges.

Check out MoneySmart’s Personal Loan Calculator to calculate loan amounts and repayment periods.


Beware debt consolidation

Beware using a personal loan to consolidate debts.

You may be tempted to continue to use the credit cards that you’ve just paid off with the loan.

If you find you are continuing to spend more than you earn, go to the MoneySmart website, which has some useful budgeting tips. One good tip is to practice paying down your debts. Start with the smallest ones first. Once you have proved to yourself you can pay off a debt, consolidation may make sense if you can get a lower interest rate. It’s also a good idea to close any credit cards you’ve paid off.


Secured loans

Secured loans usually offer lower interest rates than unsecured loans, but you need to put up an asset, such as a car, as ‘security’ to get the loan. Also note that:

  • If you don’t repay the loan, your credit provider must send you a default notice giving you a minimum of 30 days to pay the amount you are behind, plus your usual repayment
  • If you are still behind after that notice expires then your credit provider may seize your asset. The credit provider can’t seize assets from residential property without a court order or your written consent. The credit provider doesn’t have to go to court first
  • If the asset is seized, you must be given notice within 14 days, giving you 21 days to pay the debt (including enforcement costs) to get the asset back
  • The credit provider may also take you to court for the debt (without seizing assets) or for any debt remaining after the asset has been sold. The credit provider must send a notice after the sale of the security giving you details of the sale

If you’re facing a threat of asset seizure, you can do the following:

  1. Ask for a financial hardship arrangement. If an arrangement is agreed and kept to, the asset can’t be taken.
  2. Lodge a dispute with the Australian Financial Complaints Authority. It is a free dispute resolution scheme. While this process is under way and the dispute is being investigated, the asset usually can’t be taken.


Unsecured loans

With unsecured loans you don’t have to put up an asset as security, but the interest rate is usually higher.

To get an unsecured loan, you must convince the credit provider that you can repay the loan. If you don’t repay the loan, the credit provider must send a default notice giving you a minimum of 30 days to pay the amount you are behind plus your usual repayment. If you’re still behind after that notice expires, then your credit provider may start court proceedings.


Repayments made by direct debit

If you’re in financial difficulty, your direct debit repayment for your personal loan may not leave you with enough money for daily essentials. Consider cancelling the direct debit and making a repayment arrangement you can afford with your lender. Don’t forget to keep making payments you can afford using another payment method.

How to stop a direct debit
How to negotiate payment terms with your creditor

Better ways to deal with your debt

Is your phone bill out of control?

If you can’t pay your phone bill, call your service provider. You may be surprised at the help they can give you!

More about paying phone and internet bills

Need to pay an outstanding utility bill?

If you’re having trouble paying an electricity, gas or water bill, call your utility provider as soon as you can.

More about paying utility bills

Need to buy essential household goods?

‘No Interest Loan Schemes’ (usually $800 to $1,500) are available for people on low incomes to buy essential household goods, such as washing machines and fridges.

More about No Interest Loan Schemes (NILS)

Need help urgently with everyday living expenses?

If you’re in crisis or need help urgently with living expenses, there are emergency relief programs to help you with things like food, transport, accommodation, utility bills and clothing.

More about emergency assistance



Your lender is required by law to consider your request for flexible payment arrangements if you’re experiencing financial hardship.

Contact them early, inform them about your changed circumstances, and ask how they can help you with an affordable repayment plan.

Refer to Negotiate payment terms.