What is a personal loan?

A personal loan is a sum of money lent to an individual by a lender which is then repaid in regular instalments, plus interest. As the name suggests, this form of credit is often for people who want to make a bigger purchase but don't have the cash to pay for it upfront. Because most of us don't have squillions in our bank accounts, we'll often rely on a lender to help us buy a car, pay for a wedding or help us out of a sticky situation involving a few too many credit card purchases. 

So, since personal loans play such a big role in our lives today, it's a good idea to wrap your head around what they are, how they work and what you can use them for.

Not all credit products are created equal. It's important to be aware of the different types of personal loans so you can make an informed decision about which one is right for you. 
Personal loans tend to fall into two categories: unsecured and secured.

Want to know more? Dive into the differences between secured vs unsecured loans.

Honestly, pretty much anything, but lenders require specific details about what you're using the money for.

Common uses for personal loans include buying a new car, booking a holiday or honeymoon and funding the purchase of a boat, bike or other big-ticket items.

Some of the most popular loan purposes Wisr offers are debt consolidation loans, which allow customers to roll multiple high-interest debts into one low-rate loan. We also provide plenty of secured car loans so customers can upgrade their wheels and home renovation loans to spruce up their homes.

Keen to know more? Read the 7 things to know about personal loans.

The right credit option for you really comes down to how much you need to borrow and how long you need to repay what you owe.

Personal loans vs credit cards vs Buy Now Pay Later

If you're not sure which option is right for you, check out our blog weighing up personal loans vs credit cards.

Like many forms of credit, the anatomy of a personal loan is relatively straightforward. The main features to look for include:

• Principal amount – the amount you need to borrow to cover the cost of the purchase.

• Interest rate – a percentage of the total borrowed amount you are required to repay.

• Loan term – the time frame in which you agree to repay the funds.

• Establishment fees – there's a lot of work that goes on behind the scenes, so a lender may charge you a fee to set up your loan.

• Ongoing fees – some lenders will charge fees throughout the life of the loan.

• Exit fees – personally, we don't think you should be penalised for paying off debt early, but some personal loan providers will charge an early exit fee.

Your first step is to get a rate estimate. This will tell you what repayments and interest rates you’re likely to pay. At Wisr, we only run a soft credit enquiry to give you your personalised rat estimate. Once you’ve done this, you’ll have a better idea of the personal loan options available to you.

Once you’ve found a rate you’re happy with, the next step is to apply for your loan. 

When you submit your application for a personal loan, a hard enquiry will be conducted on your credit report. This can impact your credit scores, so it's best to minimise credit enquiries to the lender you select and space out future enquiries as much as possible. 

Keen to know what's impacting your score? Check your credit score with Wisr and we'll tell you when your score changes and give you personalised insights about what's affecting your score.

Your personal loan application will be assessed by the lender to determine whether you fit their eligibility criteria. They'll look at your current financial situation, which may include your credit score, credit history, bank statements, living expenses and assets. They'll also need to verify your identity to avoid cases of credit fraud. 

If a lender decides to offer you a loan, they will present you with an offer that includes your interest rate and repayment options. If you'd like to proceed, you'll choose your options and sign the contract. Shortly after, you'll see the funds in your account. After that, you'll begin making regular repayments until you reach that sweet $0 balance.

Ever lent money to a friend who never repaid their debt? I'm not talking about that one time you picked up the bill at dinner and your mate never transferred you their share of the bill. I'm talking about a significant sum in the thousands. You'd be pretty gutted if they ghosted you, right? Lenders take on that risk daily, so they must be selective about who they lend money to.

Eligibility criteria vary between lenders, but to be approved for a personal loan, you generally need to be in good credit standing, have a decent track record of repaying your debts (or at least paying your bills on time) and have enough surplus cash to meet the loan repayments comfortably. 

If your credit file demonstrates a history of ghosting your finances – missing payments, opening multiple lines of credit, going over the top on Buy Now, Pay Later – you may struggle to find a lender willing to take the risk on you. And if they do, you might get stuck with a higher interest rate to offset that risk.

The interest rate you’re offered on a personal loan will depend on multiple factors, including your credit score and the amount of debt you’re already repaying. This is because, while most lenders will offer a range of interest rates on their loans, the actual interest rate that you’re offered on a personal loan is usually personalised to you. 

Generally, the better your credit score (i.e. the higher it is), the better the interest rate you’re likely to be offered. This means that it’ll cost you less to borrow money and your monthly repayments will be lower. If your credit score is, let’s say, less than perfect, you’re more likely to be offered a higher interest rate. This is why if you’re applying for a loan, it’s essential that you check in with your credit scores first and see if there’s any simple ways you can improve them before you apply. 

Want to know more? Check out our blog, How to get a low interest personal loan.

You can also get an indication of how much your monthly repayments might be using our personal loan calculator. This calculator gives you an easy way to see how your loan amount, repayment term and credit history affect the size of your monthly repayments, giving you a better idea of what you can afford before you get a rate estimate.

Not sure where to start? Check out our 7 ways to improve your credit scores.

If you do decide a personal loan is right for you, then making sure you keep on top of your loan repayments is essential. 

When a lender assesses your loan application, they will make sure that you have enough money available to cover the cost of your repayments. That said, it’s always a good idea to have a back up plan in case of a change of circumstance. Here are our top tips to ensure that you’re set up for success from the start. 

• Set up a direct debit for your loan repayments so they’re paid automatically. This will help to make sure that you never miss a payment.

• Align your repayments with your paydays. On Wisr App you can choose whether you get paid weekly, fortnightly or monthly so you can make your personal loan repayments when it’s best for you.

• Set aside a buffer. If you can, put some money aside each month into a savings pot. This will give you a little breathing space and help you keep up with your repayments if your circumstances change.

What is a personal loan?

A form of credit that allows you to get what you want now and pay the money back over time with interest.

What should I look for in a personal loan?

A low-interest rate, reasonable fees and a flexible repayment schedule that works for you.

What can I use a personal loan for?

Almost anything. You might get a personal loan to buy a car, fund a holiday, pay for a wedding or to help you front the cost of any other big ticket item.

Can I get a personal loan if I'm self-employed?

Yes, at Wisr we offer personal loans to self employed applicants. For more information, check out our guide to personal loans for self-employed.

Do you offer joint loans?

Yep! We also offer joint loans here at Wisr. You can find out more in our guide to joint personal loans.

How do I apply for a personal loan?

It depends on the lender. These days, it's common to apply for a personal loan online directly with the lender. Other times, you may need to visit a branch or speak to someone over the phone.

At Wisr, we've created a fully digital experience. It only takes two minutes to get a rate estimate and about 10 minutes to complete the full application. We'll then aim to let you know the outcome within 24 hours and, if approved, disburse the funds the next business day. Getting a rate estimate with Wisr doesn’t affect your credit scores. 

Does applying for a personal loan affect my credit scores?

Yes, when you apply for a credit product, a hard enquiry is recorded on your credit file. This will temporarily impact your scores. With good credit behaviour, your scores will improve over time. 

What happens if my personal loan application gets declined?

There are many common reasons why loan applications get declined. You can reach out to the lender directly and ask for clarification. If they aren't willing to provide an explanation, you may find some answers in your credit report. If your credit score is on the lower side, you have a history of missed or late repayments or a high number of enquiries, these factors may have contributed to the decision. You can view your own credit scores on Wisr App or on the Wisr dashboard and receive personalised insights that summarise your credit behaviour.

Clear on what a personal loan is? Great. The next step is to get a rate estimate to see if it’s the right credit option for you.

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Services Pty Ltd does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.