An unsecured personal loan lets you borrow funds without using an asset as security. You can use this type of personal loan to make a large purchase, consolidate debt, pay for a holiday and many other reasons. Find out if this type of loan is right for you and compare available offers.

How do unsecured personal loans work?

Unsecured loans involve you receiving a certain amount of funds that you can use for any worthwhile purpose. You then pay the funds back with fees and interest.

You can generally use the loan how you choose. However, you may be asked for the purpose in your application. This will form part of the lender’s decision. When completing your application, you will also need to list how much you want to borrow and for how long.

Pros and cons of unsecured personal loans

What should you look for when comparing?

• Competitive rates. Some lenders provide a better interest rate than others. This should not be all you look for. With some lenders, the interest rate may be competitive but the total cost of the loan may be high. Interest rates for unsecured personal loans usually range from 7.5% to 25%.
• Loan terms and repayment. Apart from the cost of the loan, you should also consider the length of your loan. You should also calculate how much your repayments will cost. This helps you determine whether you can afford the loan. It also tells you what you’re paying in terms of rates and fees over the life of the loan.
• Loan amounts. Minimum and maximum loan amounts are set by lenders and usually vary between $1,000 and $100,000. It’s important to check if the amount you need is within the range offered by the lender.
• Additional fees. These can include establishment, ongoing and administration fees and add to the overall cost of your loan. Some loans may waive them altogether, but in some cases, it may be unavoidable. When comparing the cost of the loan, consider both the fees and interest rates in your calculations.

Common mistakes to avoid

• Lying about what you need the funds for. Always be upfront with your lender about why you are applying for the loan, whether it be for business purposes, to buy a new car or to consolidate debt.
• Getting into too much debt. If you are taking out an unsecured loan to consolidate existing debt, you should be wary of getting yourself into financial trouble by increasing this debt.
• Borrowing from an unlicensed lender. Always make sure to get an unsecured personal loan from a licensed lender. All providers must be licensed with the Financial Market Authority. There are also joint provisions made with the Australian Securities Investment Commission in New Zealand for companies that offer products in both countries. All lenders featured on this page are licensed.
• Not checking fees and charges. Where possible, avoid excessive fees and charges. The best way to do this is to make sure you do your research, ask questions and compare. Many lenders have a loan calculator on their website that factors in establishment fees, ongoing fees and interest costs to get an idea of what the loan will cost you. Additional fees or a different interest rate may apply, so use these calculators as a guide only.

How to apply for an unsecured personal loan

If you think an unsecured personal loan is for you, use the comparison table to compare your options. After browsing through the table and finding a suitable loan, click the link to go to the lender’s website and start the application process.

To get an unsecured loan you will need to meet a range of criteria set by the lenders:

• Be at least 18 years old.
• Be a New Zealand citizen or permanent resident. Some lenders will accept applicants on a work visa.
• Have a good credit rating and be able to provide proof that you can pay off the loan.
• Able to provide copies of your payslips, bank account statements and other credit contracts.
• You also need to provide proof of ID, such as your driver’s licence or passport.

Unsecured personal loan alternatives

Not sure if an unsecured personal loan is right for you? It pays to do your research. Here are some other personal loans types that you could consider.

• Car loans
• Short term loans
• Cash loans
• Debt consolidation

Frequently asked questions

• Can I get an unsecured personal loan for business purposes?

  Some lenders may allow you to use the funds from an unsecured loan for business purposes, but others will not. You need to confirm this with the lender before you apply.

• How can I get a low rate unsecured loan?

  While unsecured personal loans do come with higher rates than secured personal loans, you may still find a competitive low rate option. Compare your options using the table above and find a loan that meets your budget. Alternatively, check your bank’s rates for its personal loans.

• How long do I have to repay an unsecured loan?

  Unsecured personal loans tend to offer terms of between 6 months and 5 years, but some lenders may offer longer or shorter terms.

• I applied for an unsecured loan but the rate I received was different to the advertised rate. Why?

  There are 2 possible reasons. A lender may operate on a tiered-rate system, where your rate is determined by the information in your application. On the other hand, the lender approved you but then found you to be a higher risk, so it applied a higher rate to your account.