Top Mistakes Aussies Make When Taking Out a Personal Loan

A personal loan can be a great way to cover major expenses, whether that’s consolidating debts, funding a car purchase, or covering unexpected costs. But many Australians rush into personal loans without fully understanding how they work or what to look out for. The result? Higher repayments, unnecessary fees, or loans that don’t suit their long-term goals.

Borrowing More Than You Need

It can be tempting to take out a little extra “just in case,” but over-borrowing means you’ll pay more in interest and fees over the life of the loan. Lenders assess your application based on what you request, not necessarily what’s financially ideal for you. Before applying, work out exactly what you need and stick to that figure. A smaller, well-structured loan can save you thousands in the long run.

Focusing Only on the Interest Rate

A low advertised rate doesn’t always mean a cheaper loan. Some lenders promote “comparison rates” that don’t include certain fees, or they offer introductory rates that increase after a few months. Always look at the comparison rate, which includes most fees and charges, and review the full cost over the loan term, not just the headline number.

Overlooking Fees and Early Repayment Costs

Personal loans often come with establishment fees, monthly service charges, and sometimes penalties for paying out your loan early. These can add up quickly. If you plan to pay off your loan faster, make sure your lender allows early repayments without extra cost. Reading the fine print (or getting your broker to explain it) can prevent nasty surprises later.

Applying With Multiple Lenders at Once

Submitting multiple loan applications in a short timeframe can harm your credit score. Each application leaves a mark on your credit report, which can make you appear “credit hungry” to future lenders. Instead, consider getting a pre-assessment through a broker who can review your circumstances and identify which lenders are most likely to suit your needs before you apply formally.

Ignoring Your Credit Score

Your credit score influences whether your loan is approved and what rate you’ll receive. Many Aussies don’t check theirs before applying, and are caught off guard when a lender declines the application or offers less favourable terms.

If your score needs improving, take a few months to pay down debts and demonstrate good repayment history before reapplying.

Not Comparing Lenders or Loan Types

Different lenders offer personal loans with varied rates, features, and flexibility. Some are secured (backed by an asset like a car), while others are unsecured (no asset required but often higher rates). Working with a mortgage and finance broker, such as BrokerCo, can help you compare a range of options and understand how different loans might fit your circumstances.

Forgetting to Budget for Repayments

It’s easy to focus on getting approved, and forget about what comes next. Make sure your repayments fit comfortably within your regular budget, including room for unexpected expenses. A good rule of thumb is to calculate repayments at a slightly higher interest rate to prepare for potential rate rises or changes in your income. 

A personal loan can be a helpful financial tool, but only when chosen carefully.By avoiding common mistakes like over-borrowing, skipping the fine print, or applying too often, you’ll set yourself up for a more manageable and stress-free loan experience. If you’re unsure where to start, BrokerCo can provide general guidance on how personal loans work, what lenders typically look for, and how to prepare before applying.