Learn about the types of personal loans available, before you borrow.There are different types of personal loans available - figuring out which loan ticks the boxes can be difficult, particularly with all of the finance jargon involved. Whether you’re looking to consolidate credit card debt, fund a renovation project, or pay for a holiday, understanding the types of personal loans available is essential to making an informed decision. 

Fixed-Term Personal Loans

A fixed-term personal loan works by borrowing funds upfront and repaying the amount in regular installments over a period of time. The funds can be used for virtually anything, from a medical emergency to paying for a renovation.

Secured Personal Loans

A secured personal loan involves the use of an asset for collateral. This asset must have a high value, such as a car, a home, or expensive items like jewellery or artwork. Assets used to secure the loan can be claimed by the lender if borrowers fail to make repayments. Lenders often offer better terms and interest rates for a secured loan due to the extra layer of security. A secured loan also allows borrowers to access larger amounts and take out a loan while having a lower credit score.

Unsecured Personal Loans

Unsecured personal loans do not require any collateral, which means less risk for you as a borrower. However, an unsecured loan generally has higher interest rates and fees than a secured loan, but it remains much lower than those charged by credit cards.
Fixed Rate Personal Loans

With a fixed rate loan, the interest rate will remain the same throughout the entire duration of the loan. The fixed interest rate makes it easier to forecast the repayment required each month or fortnight (depending on your repayment frequency). Borrowers can budget more accurately for the total expenses and reduce the risk of missing a payment. You won’t be able to benefit from lower interest rates when the market changes, but you’ll be protected if the market interest rate rises.

Variable Rate Personal Loans

Variable rate personal loans are the opposite of fixed rate loans - the interest rate on the loan can change based on fluctuations in the broader market. A variable rate loan is more suitable for a borrower who is comfortable with the increased risk and knows how to take advantage of the increased flexibility to make extra repayments when the interest rate is low.

A variable rate loan works better for smaller loan amounts that can be repaid quickly, while a fixed rate loan provides a safer option for borrowing larger amounts due to the structured payments.
Debt Consolidation Loans

A debt consolidation loan allows borrowers to combine outstanding amounts from multiple loans into a single loan. Borrowers add up all their outstanding debts, including any early repayment fees, and take out a debt consolidation loan of the same amount to pay off each loan. The goal is to simplify multiple payments under the new debt consolidation loans, ideally with a lower total interest cost.

Line of Credit Loans

A line of credit loan is an ongoing arrangement that allows borrowers to access funds and make repayments as needed, up to a specified limit. With a line of credit loan, interest is only charged on the amount you borrow, not the maximum credit limit, making it a flexible option for accessing funds quickly when necessary. A line of credit usually has higher interest rates than a fixed-term loan but allows flexible access to funds.

The best way to find out what type of personal loan suits best is to work with a loan broker. A personal loan broker can work on your behalf to identify the best type of loan for your situation and search loan options from multiple lenders at a time to find a personal loan option with the best rates and terms. At Before U Loan, we connect borrowers like you with fully licensed and trusted loan brokers across Australia - browse our list of brokers to start finding the right personal loan for your needs.

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