Personal loans get used for everything from debt consolidation to weddings to one-off expenses. They're a genuinely useful tool in some situations, and a poor substitute for a cheaper option in others — the difference usually comes down to what you're comparing them against.
Secured vs. unsecured personal loans
A secured personal loan uses an asset (like a car, if it's not already financed) as collateral, typically earning a lower rate. An unsecured personal loan has no collateral backing it, so lenders price in more risk — expect a higher rate, particularly if your credit history isn't strong.
Always compare the comparison rate
The advertised interest rate doesn't include fees. The comparison rate — a legally standardised figure lenders must disclose — folds in most fees and gives a genuinely comparable number between different loan offers. Two loans with the same headline rate can have meaningfully different comparison rates once fees are factored in.
Debt consolidation: useful, with a catch
Consolidating several higher-rate debts (credit cards, buy-now-pay-later, existing personal loans) into a single personal loan at a lower rate can genuinely reduce your total interest and simplify your repayments. The catch: if you consolidate but then run the credit cards back up again, you've added a new debt on top of the old one rather than actually reducing what you owe. It works when it's paired with actually closing or significantly reducing the limits on what you consolidated.
An unused personal loan doesn't affect your future borrowing the way an unused credit card limit does — but an active personal loan repayment absolutely counts against you when a lender assesses your capacity for a future home loan. If a property purchase is on the horizon, factor that in before taking on new personal debt.
When a personal loan isn't the right tool
- If you have home loan equity or offset access — redrawing against your home loan is usually far cheaper than a personal loan for the same purpose
- If it's for a car purchase — a secured car loan will typically beat an unsecured personal loan on rate; see our car loan guide
- If it's for ongoing living expenses — a personal loan treats a cash flow problem with more debt, rather than addressing the underlying gap
How personal loans affect a future home loan application
Existing personal loan repayments are counted as a commitment against your income when a lender assesses a home loan application — even a loan you're managing perfectly well still reduces your calculated borrowing capacity. If you're planning to buy in the next year or two, it's worth thinking about timing.
Next step
If you're weighing a personal loan against other options — home loan equity, a car loan, or just holding off — we can talk through what actually makes sense for your situation and how it affects your broader lending picture.
Talk to us about your options