What is a personal loan?

A personal loan is your ticket to getting what you want now, with the promise to pay it off over time. In this guide, we unpack the various types of personal loans, the features of a personal loan and the stuff you need to know before applying for one.

What's in this guide?

What is a personal loan?

As the name suggests, a personal loan is a form of credit that a financial institution might lend to a person who wants to make a purchase but doesn't have the cash 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 bail 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.

Are there different types of personal loans?

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: secured and unsecured.

  • What is a secured personal loan?

    A secured personal loan is a loan that requires you to offer up an asset as collateral. It means that if you default on the loan and find yourself unable to pay it back, the lender can take ownership of the asset and sell it off to recoup their costs. This sounds a tad scary, but this type of personal loan is incredibly common. Most car loans come in the form of 'secured vehicle loans', meaning the car being purchased is the asset. Around 2.7 million Australians have an active car loan.*

  • What is an unsecured personal loan?

    An unsecured personal loan is one where no asset is offered up as collateral. These are commonly used to fund home renovations, holidays, weddings and other purchases of big-ticket items. Unsecured personal loans often come with a higher interest rate than secured loans because the lender is taking on a higher level of risk.

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

What can a personal loan be used for?

Honestly, pretty much anything. Some lenders require specific details about what you're using the money for, while others aren't interested in the particulars. 

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 types 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.

What do I look for when applying for a personal loan?

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.

How do I apply for a personal loan?

Your first step is to get a rate estimate, this will tell you what repayments and interest rates you’re likely to pay. 

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 space out credit enquiries as much as possible. 

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

How are loan applications assessed?

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.

Eligibility for personal loans

Ever lent money to a friend who never repaid their debt? I'm not talking about that one time you picked up the cheque 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 OTT 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 sky-high interest rate to offset that risk.


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.


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 the Wisr dashboard and receive personalised insights that summarise your credit behaviour.

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This article contains general information only, and is not general advice or personal advice. Wisr Services 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.

James is a marketing and communications professional with a passion for leading high-performance teams. He likes what he does… a lot.

James, Chief Growth Officer