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What is an unsecured loan, how does it work, and how to get one?

If unexpected expenses are weighing you down, unsecured loans could be the answer to your problems. But what is an unsecured loan? Read on to understand that and everything else you should know about unsecured personal loans in Australia.
Learn more about Credit24 Unsecured Personal Loans

An unsecured loan is a type of borrowing that doesn’t require collateral and is approved based on your creditworthiness. Since you don’t mortgage any asset, you can typically only borrow small amounts for short repayment terms. Due to the added risk the lenders take, the interest rates are generally higher than secured loans.¹

Types of unsecured loans

The most common unsecured loans are:

• Personal loans
• Student loans
• Credit cards
• Personal lines of credit
• Peer-to-Peer Loans
• Consolidation Loans

Let’s look at each of them individually to help you determine the best option for you.

Personal Loans

An unsecured personal loan is borrowed to cover various expenses such as wedding costs, medical bills, and vacations. It’s repaid in regular installments, often with interest.

Student Loans

Student loans are borrowed to finance higher education expenses like tuition fees. Payments are deferred until the student’s taxable income reaches a certain threshold. No interest rates are charged and payments are adjusted based on the rising costs of living.²

Credit Cards

A credit card is a form of unsecured loan provided by banks and other lenders with a predetermined spending limit. Users can make purchases, cash advances, or balance transfers within this limit. Interest is charged on any outstanding balance, and the funds can be repaid or reused as needed.

Personal Lines of Credit

A personal line of credit is a flexible unsecured loan with a pre-determined credit limit. You can access funds as needed over time. You can make repayments immediately or spread it out by just paying the regular minimum installments.

Peer-to-Peer Loans

Peer-to-peer (P2P) loans are borrowed directly from other individuals without any financial institution acting as the middleman. Through these loans, P2P lenders seek better returns on their funds than what they would typically get through banks, while borrowers look for alternatives to banks or lower interest rates.³

Consolidation Loans

A consolidation loan help in debt management by combining multiple debts into one. It involves taking out a single loan or credit card to pay off multiple debts. If it is done correctly, you may end up paying lower interest rates and monthly payments.⁴

Therefore, a line of credit can help you manage your cash flow efficiently to meet various expenses. It’s perfect for you if you’re not aware of how much funds you might need at the moment.

Credit24: Get a personal line of credit

What are some examples of an unsecured loan?

An unsecured loan is borrowed without any collateral and can be a great option for people who lack assets for a loan. It is typically given at a higher interest rate and may involve additional fees. Some common examples of unsecured personal loans in Australia are credit cards, student loans, and P2P loans.

Secured vs unsecured loan

Loans can be broadly classified into two categories—secured and unsecured. Let’s discuss the difference between secured and unsecured loans to understand your options.

• Secured loans are backed by collateral, while unsecured debts rely on creditworthiness alone.
• Unsecured loans typically have higher interest rates and stricter credit requirements.
• Secured loans offer larger borrowing limits compared to unsecured ones.
• Secured debts often provide longer repayment periods than unsecured debts.
• Unsecured loans are typically faster to obtain than secured loans.

Are personal loans secured or unsecured?

Why is an unsecured loan a good choice?

Unsecured loans are a great option for you if you don’t have enough assets or don’t want to use your assets as security. Many lenders offer an easy application process that can be completed quickly and you can receive the loan almost immediately without risking your personal property. If you repay the installments on time, it won’t affect your credit score.

However, unsecured loans often require high credit scores and can damage your credit score if you miss payments. Default can lead to legal action and wage garnishments.

Which is better – Secured loans or Unsecured Loans?

It largely depends on whether you’re a lender or a borrower. Secured loans are less risky for lenders, while unsecured loans are less risky for borrowers. Both have their pros and cons, so you must consider your purpose, requirements, and circumstances carefully before making a decision.

Credit24: quick and online unsecured personal loans

Credit24 is widely trusted as a responsible and reliable lender to provide quick online unsecured personal loans in Australia. Here are some benefits of taking out a loan from Credit24:

• Online and Fast Applications: Apply anytime for quick approvals.
• No Hidden Costs: See repayment details upfront with no hidden fees using our loan calculator.
• Flexible Options: Borrow between $500 and $10,000, repay over 36 months, and choose weekly, fortnightly, or monthly payments with no early repayment penalties.
• One-Minute Payout: If approved, get funds transferred within 60 seconds of loan approval.
• Reliability: With 10+ years of experience, serving over 300,000 customers across 12 international locations, we’re a trusted lender.
• Customer Support: A dedicated team available to assist you at every step.

Do unsecured loans hurt credit and are they more risky?

Unsecured loans can be considered less risky than secured loans in some ways since they don’t require collateral and your property is generally not seized on default. Lack of collateral also makes the entire process quicker.

But they may hurt your credit as lenders typically conduct a hard credit check to determine your credit score which can temporarily lower your score.⁵ If you don’t repay an unsecured debt on time, it can impact your credit and your lender may take legal action against you to attach your property and wages for repayment.

How to make sure you don’t default?

• Contact your lender for hardship programs or due date adjustments.
• Review your budget to cut discretionary expenses.
• Consider loan refinancing or debt consolidation for improved terms.
• Seek assistance from credit counseling agencies for lower interest rates and manageable payment plans.

How much can I borrow with an unsecured personal loan?

The amount of money you can borrow with an unsecured personal loan in Australia depends on various factors including your credit score, income and financial history, and the borrowing limits set by the lender.

With Credit24, you can apply for an unsecured personal loan of up to $10,000 with the online application form that is available around the clock. We assess your financial standing based on the information you submit to determine the loan amount you can comfortably repay.

Apply for an unsecured Personal Loan up to $10,000

What are the requirements for an unsecured loan?

To apply for an unsecured personal loan in Australia, you need to be over the age of 18, have a fairly good credit score, and have a stable income source. The lenders may have additional eligibility criteria and requirements to assess your financial standing.

For a Credit24 unsecured loan, you must:

• be over 18 years old
• an Australian Citizen or Permanent Resident
• have a consistent monthly income of at least $1,000 
• have a reasonable credit history.
• Centrelink payments is less than 50% of your total monthly income.

How to get an unsecured loan? Is it hard to get one?

Qualifying for an unsecured loan depends on factors like credit score, debt-to-income ratio, stable employment, and regular income. As long as these things are assessed and you are determined as a good candidate for an unsecured loan, it’s not hard to get one. 

With Credit24, your journey to apply for an unsecured loan can be easy and hassle-free. To complete the application, we require:

• Your mobile number and email address
• ID which may include your driver’s license details, Medicare Card or passport number
• The last three months of bank statements obtained by you logging into our banking platform via Illion’s secure portal.
• Keep all the information handy to finish the application in less than 10 minutes.

Credit24: Unsecured Personal Loans in Australia

Disclaimer:
IPF Digital Australia Pty Ltd, trading as Credit24, ABN 59 130 894 405. Australian Credit Licence 422839. The information in this article is of general nature and does not take into consideration your objectives, financial situation or needs. Lending criteria, fees and charges apply. For more information about our products, eligibility criteria and terms and conditions, please visit www.credit24.com.au.

Sources:

1. Nerdwallet: What Is an Unsecured Personal Loan?
2. Parliament of Australia: Higher Education Loan Program (HELP) and other student loans: a quick guide
3. Investopedia: What Is Peer-to-Peer (P2P) Lending? Definition and How It Works
4. Investopedia: What Is Debt Consolidation and When Is It a Good Idea?
5. ClearScore: Does a Credit Check Affect your Credit Score?
6. Nerdwallet: What Is an Unsecured Personal Loan?
7. Parliament of Australia: Higher Education Loan Program (HELP) and other student loans: a quick guide
8. Investopedia: What Is Peer-to-Peer (P2P) Lending? Definition and How It Works
9. Investopedia: What Is Debt Consolidation and When Is It a Good Idea?
10. ClearScore: Does a Credit Check Affect your Credit Score?