Types of Personal Loans: An Australian Guide
Navigating the world of personal loans in Australia can feel overwhelming with so many options available. Whether you're planning a wedding, consolidating debt, or covering unexpected expenses, understanding the different types of personal loans can help you make a sound financial decision that suits your unique situation.
In this article, we’ll cover different types of personal loans, including Credit24 and our fast and reliable small personal loans – with applications processed in minutes and funds typically disbursed within 60 seconds* after approval.
Understanding personal loans
In short, personal loans provide a lump sum of money that you repay over a set period of time, typically between one and seven years.
Secured loans (such as mortgages or car loans) usually give the lender security over the item purchased. If the loan is not repaid, the lender can repossess the item.
Unsecured loans give you flexibility in your use of the funds — whether for home renovations, debt consolidation, medical expenses, or even a dream holiday.
Most personal loans feature fixed repayments, making budgeting straightforward. Interest rates and fees vary based on your credit history, income, the loan amount, and the lender's policies. Before applying for any personal loan, it's crucial to understand the various options available and how they might suit your financial circumstances.
Main types of personal loans
The personal loan market offers different categories, each with unique features and benefits. Let’s explore the main options you'll find during your search.
Traditional personal loans
When most people think of personal loans, they picture those offered by established financial institutions like banks and credit providers. These traditional lenders have been the backbone of consumer lending for decades, providing structured loan products with clear terms.
Traditional personal loans often come with:
- Fixed or variable interest rates
- Set repayment terms
- Clear fee structures
- More detailed assessment of your income, expenses, and credit history
Peer-to-peer personal loans
The digital revolution has transformed many industries, and lending is no exception. Peer-to-peer (P2P) platforms are innovative alternatives to traditional finance models, connecting borrowers directly with individual investors willing to fund your loan.
In Australia, examples include platforms like SocietyOne, Plenti (formerly RateSetter), and Harmoney. These platforms create marketplaces where your loan application might be funded by multiple investors rather than a single institution.
What makes P2P lending particularly popular?
- Online-first approach and faster applications
- Potentially competitive interest rates
- Rates often determined by risk-based assessments or bidding processes
Line of credit personal loans
Unlike standard personal loans that provide a single lump sum, lines of credit offer ongoing access to funds up to a predetermined limit. This revolving credit arrangement works somewhat like a credit card.
The main benefit is flexibility. Instead of borrowing a fixed amount, you borrow only what you need, when you need it — and you pay interest only on your outstanding balance, not your full limit.
This structure makes lines of credit ideal when expenses are unpredictable or ongoing.
Some major financial institutions in Australia offer personal lines of credit, though they typically require stronger credit profiles. Repayment structures vary:
- Some operate like credit cards with minimum monthly repayments
- Others work more like traditional loans, with more structured repayments
Types of personal loans by security
Beyond their source and structure, personal loans can also be broken down based on whether collateral is required.
Secured loans
Secured loans are backed by a valuable asset — like a car, property, savings, or even an investment portfolio — that the lender can claim if repayments aren’t made as agreed.
Key benefits include:
- Lower interest rates (often 2–4 percentage points lower than unsecured loans)
- Potentially higher borrowing limits
- Longer terms in some cases
This rate difference might seem small, but it can add up. For example, on a $30,000 loan over five years, choosing a 7% secured loan instead of a 10% unsecured option could save you thousands in interest.
These loans are often used for larger expenses such as vehicles, major renovations, or debt consolidation when you have suitable collateral.
Unsecured loans
Unsecured loans don’t require collateral. Instead, lenders base approval decisions on your:
- Credit history
- Income and employment stability
- Existing debt commitments
The trade-off is usually higher interest rates to compensate lenders for the increased risk. However, the upside is peace of mind — you’re not directly putting a specific asset at risk if your circumstances change.
Unsecured loans can be a good fit when you need funds for purposes that don’t involve a physical asset, such as:
- Consolidating high-interest credit card debt
- Covering medical expenses
- Financing a wedding or milestone event
- Managing emergency expenses
Unsecured loans generally feature streamlined application processes, as there is no asset valuation or security paperwork. This can lead to faster approvals, sometimes within hours, which is helpful when time matters.
Need an unsecured loan? Meet Credit24.
Types of personal loans by interest rate
The interest structure of your loan significantly impacts both your monthly budget and the total cost over time. Broadly, there are two main categories.
Fixed rate personal loans
Fixed rate personal loans offer predictability. Once your rate is set, it stays the same throughout the loan term, regardless of market rate changes.
Benefits include:
- Consistent repayment amounts
- Easier budgeting and planning
- Protection if market rates rise
For example, if you secure a three-year loan at 8.99%, your repayments remain stable even if market rates rise to 10% or more. The downside is that you won’t benefit if interest rates drop during your loan term.
In Australia, personal loan terms typically range from one to five years (sometimes up to seven). The exact rate you’re offered depends on your:
- Credit score
- Income stability
- Loan amount
- Chosen term length
Variable rate personal loans
Variable rate loans introduce more flexibility — and more uncertainty. With these loans, your interest rate can go up or down over time.
Pros:
- Often lower initial interest rates than fixed loans
- Potential to save money if rates fall
Cons:
- Repayments can increase if rates rise
- Harder to predict future monthly payments
- May contribute to financial stress if rates rise sharply
This type of loan can suit borrowers who are comfortable with some risk and have enough room in their budget to handle possible repayment increases.
How to choose the right personal loan type
Investigating the different types of personal loans in Australia means balancing several factors specific to your situation and goals.
Check your credit score.
Your credit score influences the interest rates and terms available to you. A higher score usually unlocks better options, while a lower score may limit your choices or increase your costs. Review your credit report and correct any errors before applying.
Clarify your borrowing purpose.
Your goal helps determine which loan type fits best. For larger expenses where you can offer security (such as a car or home equity), secured loans often provide lower rates. For smaller or short-term needs, unsecured loans or lines of credit may be more suitable.
Assess affordability first.
Use online calculators to estimate repayments under different scenarios and make sure they fit comfortably within your budget. Include a buffer for emergencies. Remember, the lowest monthly repayment isn’t always best if it means significantly more interest over the life of the loan.
Look beyond the headline rate.
Don’t just compare interest rates — compare comparison rates, which bundle in most standard fees and charges. Even a small difference in comparison rate can mean a substantial saving over several years.
Consider repayment flexibility.
Features like fee-free extra repayments, hardship options, or the ability to change repayment frequency can be valuable if your income or living situation changes. These features may come with slightly higher rates but can be worth it for added flexibility.
Evaluate loan terms and fees together.
Longer terms lower your monthly repayments but increase total interest paid. Aim for a term that balances manageable repayments with limiting long-term interest costs. Also review all fees — application, monthly service, late payment, and early repayment fees — as they all affect overall value.
Need a personal loan? Meet Credit24 and apply now
Searching for a straightforward, hassle-free borrowing experience? Credit24 stands apart from traditional lenders by offering quick, reliable personal loans designed around your needs.
Our digital-first approach removes unnecessary paperwork and long waiting periods. The entire application process can take just minutes to complete online, and eligible approved borrowers can receive funds in minutes* after approval — helping you cover unexpected expenses or time-sensitive opportunities.
With Credit24, you'll know exactly what you owe and when each payment is due, giving you clarity and control. We offer:
- Loan amounts from $500 to $10,000
- Repayment terms between 6 and 36 months
- Clear, transparent costs with no hidden fees
Apply online now and take a confident step toward achieving your financial goals.
