Not every expense fits neatly into a home loan, car loan or business finance product.
You might need to renovate part of your home without refinancing your mortgage. You could be buying an older vehicle that does not meet a lender’s normal car finance criteria. Perhaps you need to fund several different expenses at once rather than purchasing one specific asset.
This is where personal finance options can become useful.
A personal loan generally allows you to borrow an agreed amount and repay it, plus interest and applicable fees, over a set period. Depending on the lender, the loan may be secured against an asset or completely unsecured.
The important point is that personal finance isn’t necessarily a replacement for every other type of finance. Instead, it can provide another avenue when a more specialised loan isn’t appropriate for what you’re trying to achieve.
What Is Personal Finance?
In a lending context, personal finance generally refers to borrowing money for personal rather than primarily business purposes.
Personal loans can potentially be used for purposes such as:
- Home improvements and renovations
- Cars and other vehicles
- Boats, motorcycles or caravans
- Weddings and major events
- Travel
- Medical or dental expenses
- Education expenses
- Purchasing multiple items at once
- Consolidating eligible existing debts
According to Moneysmart, personal loans generally involve borrowing a set amount of money and repaying it, with interest and applicable fees, over an agreed period.
This flexibility is one of the main differences between personal finance and a loan designed around one specific asset.
When Can Personal Finance Help If Another Loan Doesn’t Fit?
There are several situations where personal finance may be worth considering, particularly when the expense or purchase doesn’t fit neatly within a more specialised lending product.
1. When There Isn’t a Specific Asset to Finance
Many finance products are designed around exactly what you are purchasing.
A car loan may be secured against a vehicle. Equipment finance may be designed around machinery being purchased for a business. A home loan is secured against property.
But what happens if what you need money for isn’t a single financeable asset?
For example, you might need funds for a combination of flooring, appliances, furniture and trades as part of a home improvement project.
Depending on your circumstances, an unsecured personal loan may allow the funds to be used more broadly without requiring one particular purchase to act as security.
That flexibility can make personal finance worth investigating when the purpose doesn’t fit neatly into another loan category.
2. When the Asset Doesn’t Meet Standard Lending Criteria
Sometimes the problem isn’t the borrower. It’s the asset.
Specialised asset finance can have restrictions relating to factors such as the asset’s age, condition, value or how it is being purchased.
Consider someone purchasing an older car or motorcycle.
A lender offering secured vehicle finance may have limits on the age of vehicles it will accept as security. In that situation, a different lender or an unsecured personal loan may potentially provide another approach.
That doesn’t mean personal finance will automatically be better or cheaper. It means there may be more than one way to structure the purchase.
For eligible vehicles that do meet normal lending criteria, a dedicated car finance option may still be worth comparing first.
3. When You’re Buying From a Private Seller
Financing something purchased privately can sometimes work differently from purchasing through a dealership or established supplier.
Cars, motorcycles, boats and other assets are frequently sold through private marketplaces.
Depending on the asset and lender requirements, dedicated finance may still be available. However, where a standard secured product doesn’t suit the transaction, personal finance can be another option to investigate.
For example, LoanBrix also offers specific finance options for motorcycles and boats. It can therefore make sense to compare a specialised product against a broader personal loan rather than automatically choosing one or the other.
4. When You’re Funding Several Different Expenses
Imagine you need $25,000, but the money isn’t all going towards one purchase.
It might include:
- $10,000 for renovations
- $5,000 for furniture
- $4,000 for landscaping
- $6,000 for other household expenses
There may not be one asset that naturally fits a dedicated finance product.
A personal loan can potentially package the required funding into one loan and one repayment, subject to lender approval.
This is one of the situations where the purpose flexibility of personal finance can be particularly useful.
5. When Refinancing Your Home Loan Doesn’t Make Sense
Homeowners sometimes assume that accessing equity through their mortgage is automatically the best way to fund a large personal expense.
It isn’t always that simple.
Refinancing or increasing a home loan may involve considerations including:
- The interest rate on the entire home loan
- Loan application or discharge costs
- Property valuation
- Lender servicing requirements
- The length of time the additional debt will remain outstanding
- Whether changing lenders affects existing loan features
A home loan will generally have a much longer term than a personal loan. While the interest rate may be lower, stretching a relatively small purchase over many years can affect the total interest paid.
For some borrowers, refinancing will still make sense. For others, keeping the home loan untouched and comparing a shorter-term personal finance option may be worth considering.
The right answer depends on the numbers rather than simply which loan advertises the lowest rate.
Secured vs Unsecured Personal Finance
One of the main decisions with personal finance is whether the loan will be secured or unsecured.
Secured Personal Loan
A secured personal loan uses an eligible asset as security for the debt.
Because the lender has security, secured loans can often attract lower interest rates than comparable unsecured lending. However, if the borrower fails to repay the loan, the lender may be able to repossess and sell the secured asset.
Unsecured Personal Loan
An unsecured loan does not require an asset to secure the debt.
This can provide more freedom around how the money is used, but rates are commonly higher because the lender is taking on additional risk.
When comparing either option, it is worth looking beyond the advertised rate and considering fees, the loan term, repayment flexibility and the total amount repayable.
Is Personal Finance Easier to Get?
Not necessarily.
Personal finance can be more flexible in its purpose, but that shouldn’t be confused with automatic approval.
Lenders can still assess factors such as:
- Your income
- Existing debts
- Living expenses
- Credit history
- Employment
- Requested loan amount
- Ability to meet repayments
The rate available to one borrower can also be different from the rate available to another.
This is one reason applying to lender after lender isn’t necessarily a good strategy.
Instead, understanding which lenders and loan structures are appropriate for your circumstances can help narrow down the options before an application is submitted.
When Might Another Finance Option Be Better?
Personal finance is flexible, but that doesn’t make it the correct product for every situation.
If you’re buying a car that qualifies for a competitive secured car loan, dedicated car finance may be more appropriate.
If a vehicle, truck or piece of machinery will primarily be used for business, it may be worth reading our guide on how commercial equipment finance works to see whether a business-focused finance structure could be more appropriate.
If you’re funding substantial renovations and have sufficient property equity, reviewing your home loan may also be worthwhile.
For smaller or unusual expenses, the important thing is to compare the available structures rather than assuming a personal loan is automatically the right option.
The aim shouldn’t be to force an expense into a particular loan. It should be to compare the structures that could actually work for your situation.
How Do You Compare Personal Finance Options?
Don’t look at the interest rate alone.
When comparing personal loans, consider:
- Interest rate: What rate actually applies to you?
- Comparison rate: What does the loan cost once most fees are included?
- Loan term: How long will you be making repayments?
- Total repayment: How much will you have paid by the end?
- Secured or unsecured: Are you providing an asset as security?
- Extra repayments: Can you reduce the debt sooner?
- Early repayment costs: Are there fees for paying the loan out early?
- Repayment amount: Does it realistically fit your budget?
A longer loan term can reduce the regular repayment while increasing the overall amount of interest you pay.
Looking at the total cost of the loan can therefore be just as important as comparing the weekly or monthly repayment.
Can a Finance Broker Help With Personal Finance?
Yes. A finance broker can help compare whether a personal loan or a more specialised finance product better suits what you’re trying to fund.
For example, you may initially ask for a personal loan but discover that secured vehicle finance is more suitable. Or you might look at conventional car finance only to find that the vehicle doesn’t fit a particular lender’s criteria, making another lending structure worth exploring.
At LoanBrix, we can look at the purpose of the loan first, then consider which finance options may be available rather than assuming one product is the answer.
Our personal lending options include secured and unsecured personal loans as well as specific finance for cars, motorcycles, boats and other personal purchases.
Frequently Asked Questions About Personal Finance
What can a personal loan be used for?
Depending on the lender, personal loans may be used for vehicles, renovations, travel, events, medical expenses, debt consolidation and various other personal expenses. The lender may place restrictions on acceptable loan purposes.
Can I use a personal loan instead of car finance?
Potentially. A personal loan may be considered if dedicated car finance isn’t suitable, although a secured car loan may offer different rates or terms. Comparing both options can help determine which structure better suits the purchase.
Can personal finance be used for renovations?
Yes, personal loans can potentially be used for home improvements and smaller renovation projects. Homeowners may also want to compare this against refinancing or accessing available property equity.
Can I get personal finance without security?
Unsecured personal loans do not require an asset as security. Approval, available loan amounts and pricing will still depend on the lender’s assessment of your financial circumstances.
Is an unsecured personal loan more expensive?
Unsecured personal loans commonly have higher interest rates than secured loans because the lender does not have an asset securing the debt. The exact rate depends on the lender and borrower.
What happens if a normal finance option doesn’t work?
It doesn’t necessarily mean there are no other options. Different lenders can have different policies, and the purchase may be able to be structured through another type of finance. A broker can help determine whether another lender or loan structure may be appropriate.
The Bottom Line: Personal Finance Can Fill the Gaps
Some purchases fit perfectly into traditional finance products.
Others don’t.
When you’re funding several expenses, purchasing an unusual asset, considering an unsecured loan or simply dealing with a situation that doesn’t fit standard finance criteria, personal finance options can provide another avenue to explore.
The important part is comparing the alternatives rather than assuming that the first loan type you consider is the only option.
LoanBrix can help assess what you’re looking to finance and compare personal loan, vehicle finance, asset finance and other lending options where appropriate.
Need finance but aren’t sure which loan type fits? Speak with LoanBrix about what you’re trying to achieve and we can help you work through the available options.
General information only. This article does not take into account your objectives, financial situation or needs. Lending criteria, fees, rates and eligibility vary between lenders.
