{"id":1533,"date":"2022-11-14T18:20:30","date_gmt":"2022-11-14T18:20:30","guid":{"rendered":"https:\/\/www.nerdwallet.com\/au\/?page_id=1533"},"modified":"2024-04-05T22:06:01","modified_gmt":"2024-04-05T22:06:01","slug":"what-is-a-loan","status":"publish","type":"page","link":"https:\/\/www.nerdwallet.com\/au\/loans\/what-is-a-loan","title":{"rendered":"What Is A Loan?"},"content":{"rendered":"\n<p class=\"\">A loan is a sum of money that you borrow from a financial institution \u2014 a bank, credit union or online lender \u2014 or a person, like a family member. You then pay back that amount in full later, typically with interest.<\/p>\n\n\n\n<p class=\"\">All loans have similar attributes. But there are different types of loans, depending on how you use them.<\/p>\n\n\n\t<div class=\"c-block-table-of-contents nw-table-of-contents wp-block-table-of-contents \">\n\t\t<div class=\"c-block-table-of-contents__table-wrapper \">\n\t\t\t<h2 id=\"jump-to\"  class=\"c-block-table-of-contents__title\">Jump to<\/h2>\n\t\t\t<ul class=\"c-block-table-of-contents__links\">\n\t\t\t\t<li class=\"c-block-table-of-contents__link\"><a href=\"#how-do-loans-work\">How do loans work?<\/a><\/li><li class=\"c-block-table-of-contents__link\"><a href=\"#types-of-loans\">Types of loans<\/a><\/li><li class=\"c-block-table-of-contents__link\"><a href=\"#secured-loans\">Secured loans<\/a><\/li><li class=\"c-block-table-of-contents__link\"><a href=\"#unsecured-loans\">Unsecured loans<\/a><\/li><li class=\"c-block-table-of-contents__link\"><a href=\"#the-most-common-loan-categories\">The most common loan categories<\/a><\/li>\t\t\t<\/ul>\n\t\t\t<div class=\"c-block-table-of-contents__show-more--wrapper\">\n\t\t\t\t<span class=\"c-block-table-of-contents__show-more\">\n\t\t\t\t\t<label class=\"show-more-label\" for=\"c-block-table-of-contents__show-more\">Show more<\/label>\n\t\t\t\t\t<label class=\"hide-more-label\" for=\"c-block-table-of-contents__show-more\">Show less<\/label>\n\t\t\t\t<\/span>\n\t\t\t<\/div>\n\t\t<\/div>\n\t<\/div>\n\n\n\n<h2 id=\"how-do-loans-work\"  class=\"wp-block-heading\"><strong>How do loans work?<\/strong><\/h2>\n\n\n\n<p class=\"\">Loans generally have four primary features: principal, interest, instalment payment and term. Understanding each of these will help you decide if a loan suits your needs, and whether you can afford to take one out.<\/p>\n\n\n\n<p class=\"\"><strong>Principal:<\/strong> This is the amount of money you borrow from a lender. For example, it could be&nbsp; $500,000 for a new house or $500 for a car repair.<\/p>\n\n\n\n<p class=\"\"><strong>Interest:<\/strong> The interest rate is the cost of a loan, which is how much you have to pay back in addition to the principal. Lenders determine your interest rate based on several factors, including your <a href=\"https:\/\/www.nerdwallet.com\/au\/personal-finance\/what-is-a-good-credit-score\">credit score<\/a>, the type of loan and how much time you need to repay the loan.<\/p>\n\n\n\n<p class=\"\">The interest charged differs from the<a href=\"https:\/\/www.nerdwallet.com\/article\/loans\/personal-loans\/annual-percentage-rate-personal-loan\"> <\/a>interest rate per annum (p.a.), which also includes other costs like upfront fees.<\/p>\n\n\n\n<p class=\"\"><strong>Instalment payments:<\/strong> Loans are usually repaid to the lender at a regular cadence, typically monthly. Your monthly payment is commonly a fixed amount, so you know exactly how much money will come out of your account with each instalment.<\/p>\n\n\n\n<p class=\"\"><strong>Term:<\/strong> The loan term is how much time you have to repay the loan in full. Depending on the type of loan, the term can range from a few weeks to several years.<\/p>\n\n\n\n<h2 id=\"types-of-loans\"  class=\"wp-block-heading\"><strong>Types of loans<\/strong><\/h2>\n\n\n\n<p class=\"\">Loans fall into two broad categories: secured loans and unsecured loans.<\/p>\n\n\n\n<h3 id=\"secured-loans\"  class=\"wp-block-heading\">Secured loans<\/h3>\n\n\n\n<p class=\"\">Examples: A mortgage or a car loan.<\/p>\n\n\n\n<p class=\"\">For secured loans, the lender typically uses a physical asset, like your home or car, to secure its money if you cannot repay the loan as agreed. The lender bases your interest rate on the asset as well as your credit score and <a href=\"https:\/\/www.nerdwallet.com\/au\/personal-finance\/credit-report-australia\">credit history<\/a>. Secured loans typically have lower interest rates than unsecured loans.<\/p>\n\n\n\n<h3 id=\"unsecured-loans\"  class=\"wp-block-heading\">Unsecured loans<\/h3>\n\n\n\n<p class=\"\">Examples: A personal loan or a payday loan.<\/p>\n\n\n\n<p class=\"\">Lenders offering unsecured loans base your interest rate on financial factors like your credit score, income and existing debt. If you don&#8217;t pay back the loan as agreed, the lender can&#8217;t seize any of your assets, but it can go down the legal route and take you to court to get back the money. The lender can also report the default to the credit bureaus, which will <a href=\"https:\/\/www.nerdwallet.com\/au\/personal-finance\/what-affects-your-credit-score\">hurt your credit score<\/a> and your ability to get another loan in the future.<\/p>\n\n\n\n<p class=\"\">Unsecured loans typically come with higher interest rates and smaller loan amounts than secured loans.<\/p>\n\n\n\n<h3 id=\"the-most-common-loan-categories\"  class=\"wp-block-heading\">The most common loan categories<\/h3>\n\n\n\n<p class=\"\">Here\u2019s a snapshot of different types of loans, many of which are used to finance specific purchases&#8230;&nbsp;<\/p>\n\n\n\n<ul class=\"\">\n<li class=\"\"><strong>Home loan. <\/strong>Also known as a <a href=\"https:\/\/www.nerdwallet.com\/au\/home-loans\/what-is-a-mortgage-home-loan\">mortgage<\/a>, this is a loan used to buy a home. It\u2019s a long-term debt, with terms typically lasting 25 or 30 years. Once you\u2019ve paid off your mortgage, you own your home outright.<\/li>\n\n\n\n<li class=\"\"><strong>Car loan. <\/strong>If you\u2019re in the market for a new or used car, a <a href=\"https:\/\/www.nerdwallet.com\/au\/loans\/personal-loan-vs-car-loan\">car loan<\/a> is a type of personal loan that can help you buy the vehicle you have your eye on. You\u2019ll pay off the loan and interest over a fixed term, usually one to seven years.<\/li>\n\n\n\n<li class=\"\"><strong>Personal loan. <\/strong>The money from a <a href=\"https:\/\/www.nerdwallet.com\/au\/loans\/what-is-a-personal-loan\">personal loan<\/a> can be used for anything, though people tend to take out personal loans to cover large purchases like holidays or home renovations. You\u2019ll agree on a repayment schedule, which is often between one and seven years.<\/li>\n\n\n\n<li class=\"\"><strong>Payday loan. <\/strong>Sometimes called \u201csmall amount loan,\u201d a payday loan lets you borrow up to $2,000, and you have 16 days to one year to pay it back.&nbsp;<\/li>\n\n\n\n<li class=\"\"><strong>No interest loan. <\/strong>If you <a href=\"https:\/\/www.nerdwallet.com\/au\/loans\/need-money-now\">need cash<\/a> for essential items, like a new fridge or an emergency car repair, you might be eligible for a $1,500 loan under the No Interest Loan Scheme (NILS). These loans are open to people with a Health Care Card, Pensioner Card or an after-tax income of less than $45,000 per year.<\/li>\n\n\n\n<li class=\"\"><strong>Education loan. <\/strong>The government\u2019s Higher Education Loan Help (HELP) initiative helps students and apprentices pay for expenses \u2014 like course fees and tools \u2014 while they\u2019re studying or training.&nbsp; You&#8217;ll need to start paying back the loan when you\u2019re in the workforce and earning more than $46,620 per year. You can put 1% to 10% of your income towards your repayments.<\/li>\n<\/ul>\n\n\n\n<p class=\"has-text-align-center\"><em>If you\u2019re in the United States, read <a href=\"https:\/\/www.nerdwallet.com\/article\/loans\/personal-loans\/what-is-a-loan\" target=\"_blank\" rel=\"noreferrer noopener\">this article<\/a> on the NerdWallet US site.<\/em><\/p>\n\n\n\n<div class=\"nwb-authors nwb-authors__footer wp-block-nerdwallet-blocks-authors-card\">\n\t<div class=\"nwb-authors__wrapper\">\n\t\t<h4 id=\"about-the-author\"  class=\"nwb-authors__title\">\n\t\t\tAbout the Author\t\t<\/h4>\n\n\t\t\t\t\t<div class=\"nwb-authors__content\">\n\t\t\t\t\t\t\t\t\t<a href=\"https:\/\/www.nerdwallet.com\/au\/author\/katia-iervasi\">\n\t\t\t\t\t\t<img\n\t\t\t\t\t\t\tclass=\"nwb-authors__image\"\n\t\t\t\t\t\t\tsrc=\"https:\/\/www.nerdwallet.com\/au\/wp-content\/uploads\/sites\/3\/2022\/10\/katia-100x100.jpeg\"\n\t\t\t\t\t\t\twidth=\"120\" height=\"120\"\n\t\t\t\t\t\t\talt=\"Katia Iervasi photo\"\n\t\t\t\t\t\t\/>\n\t\t\t\t\t<\/a>\n\t\t\t\t\n\t\t\t\t<div>\n\t\t\t\t\t<a href=\"https:\/\/www.nerdwallet.com\/au\/author\/katia-iervasi\">\n\t\t\t\t\t\t<strong>Katia Iervasi<\/strong>\n\t\t\t\t\t<\/a>\n\n\t\t\t\t\t<div class=\"nwb-authors__bio\">\n\t\t\t\t\t\t\t\t\t\t\t\t\t<p>Katia Iervasi is an assistant assigning editor and spokesperson at NerdWallet US. An insurance authority, she previously spent over six years covering insurance topics as a writer, where she loved&hellip;<\/p>\n\t\t\t\t\t\t\t\t\t\t\t\t<a href=\"https:\/\/www.nerdwallet.com\/au\/author\/katia-iervasi\" title=\"Read more about Katia Iervasi\">\n\t\t\t\t\t\t\t<span>Read more about Katia Iervasi and explore their articles<\/span>\n\t\t\t\t\t\t<\/a>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t<\/div>\n\t\t\t<\/div>\n<\/div>\n\n\n\n\t<section class=\"c-block-card-grid container\"\n\t\t\t>\n\t\t\t\t\t<h4 id=\"dive-even-deeper\"  class=\"c-block-card-grid__title\">\n\t\t\t\tDIVE EVEN DEEPER\t\t\t<\/h4>\n\t\t\n\t\t<div class=\"c-block-card-grid-scroll column-four\">\n\t\t\t<div class=\"c-block-card-grid-scroll__column\">\n<div id=\"post-349\" class=\"c-block-card post-349 page type-page status-publish has-post-thumbnail hentry content-classification-personal-loans topic-small-personal-loans cluster-small-personal-loan-basics\">\n\t<div class=\"c-block-card__inner c-block-card__inner--large\">\n\t\t\t<a class=\"c-block-card__image-wrapper\" href=\"https:\/\/www.nerdwallet.com\/au\/loans\/buy-now-pay-later-guide\" rel=\"bookmark\">\n\t\t<img loading=\"lazy\" width=\"435\" height=\"290\" decoding=\"async\" src=\"https:\/\/www.nerdwallet.com\/au\/wp-content\/uploads\/sites\/3\/2022\/10\/buy-now-pay-later-435x290.jpg\" class=\"c-block-card__image wp-post-image\" alt=\"Buy Now, Pay Later: What to Know Before You BNPL\" \/>\t<\/a><!-- .c-entry__thumbnail -->\n\t\t\t<div class=\"c-block-card__content-wrapper\">\n\t\t\t\n<h4 id=\"buy-now-pay-later-what-to-know-before-you-bnpl\"  class=\"c-block-card__title\">\n\t<a href=\"https:\/\/www.nerdwallet.com\/au\/loans\/buy-now-pay-later-guide\" rel=\"bookmark\" class=\"c-block-card__title-link\">\n\t\tBuy Now, Pay Later: What to Know Before You BNPL\t<\/a>\n<\/h4>\n\n\t<div class=\"c-block-card__content\">\n\t\t<p>Buy now, pay later divides the total cost of a purchase into several smaller payments, often without charging interest or fees.<\/p>\n\t<\/div>\n\n\t<div class=\"c-block-card__authors\">\n\t\t\t\t<div class=\"nw-written-by-layout-inline\">\n\t\t\t\n\t\t\t<div class=\"nw-written-by-layout-inline--wrapper\">\n\t\t\t\t<a href=\"https:\/\/www.nerdwallet.com\/au\/author\/amanda-smith\" class=\"author url fn\" rel=\"author\"><img loading=\"lazy\" decoding=\"async\" width=\"32\" height=\"32\" src=\"https:\/\/www.nerdwallet.com\/au\/wp-content\/uploads\/sites\/3\/2022\/10\/AmandaSmith1-edited-scaled-e1725395436514-40x40.jpg\" class=\"avatar avatar-32 photo wp-post-image\" alt=\"\" \/>Amanda Smith<\/a>\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n\t\t<\/div><!-- .c-card__content-wrapper -->\n\t<\/div>\n<\/div><!-- #post-349 -->\n<\/div><div class=\"c-block-card-grid-scroll__column\">\n<div id=\"post-1511\" class=\"c-block-card post-1511 page type-page status-publish has-post-thumbnail hentry content-classification-personal-loans topic-guide-to-personal-loans cluster-about-personal-loans\">\n\t<div class=\"c-block-card__inner c-block-card__inner--large\">\n\t\t\t<a class=\"c-block-card__image-wrapper\" href=\"https:\/\/www.nerdwallet.com\/au\/loans\/personal-loan-vs-car-loan\" rel=\"bookmark\">\n\t\t<img loading=\"lazy\" width=\"435\" height=\"290\" decoding=\"async\" src=\"https:\/\/www.nerdwallet.com\/au\/wp-content\/uploads\/sites\/3\/2022\/11\/car-loan-vs-personal-loan-435x290.jpg\" class=\"c-block-card__image wp-post-image\" alt=\"Personal Loan Vs. Car Loan: What\u2019s The Difference?\" \/>\t<\/a><!-- .c-entry__thumbnail -->\n\t\t\t<div class=\"c-block-card__content-wrapper\">\n\t\t\t\n<h4 id=\"personal-loan-vs-car-loan-what%e2%80%99s-the-difference\"  class=\"c-block-card__title\">\n\t<a href=\"https:\/\/www.nerdwallet.com\/au\/loans\/personal-loan-vs-car-loan\" rel=\"bookmark\" class=\"c-block-card__title-link\">\n\t\tPersonal Loan Vs. Car Loan: What\u2019s The Difference?\t<\/a>\n<\/h4>\n\n\t<div class=\"c-block-card__content\">\n\t\t<p>Personal loans give you a lump sum for large purchases. Credit cards work better for smaller, everyday expenses.<\/p>\n\t<\/div>\n\n\t<div class=\"c-block-card__authors\">\n\t\t\t\t<div class=\"nw-written-by-layout-inline\">\n\t\t\t\n\t\t\t<div class=\"nw-written-by-layout-inline--wrapper\">\n\t\t\t\t<a href=\"https:\/\/www.nerdwallet.com\/au\/author\/katia-iervasi\" class=\"author url fn\" rel=\"author\"><img loading=\"lazy\" decoding=\"async\" width=\"32\" height=\"32\" src=\"https:\/\/www.nerdwallet.com\/au\/wp-content\/uploads\/sites\/3\/2022\/10\/katia-40x40.jpeg\" class=\"avatar avatar-32 photo wp-post-image\" alt=\"\" \/>Katia Iervasi<\/a>\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n\t\t<\/div><!-- .c-card__content-wrapper -->\n\t<\/div>\n<\/div><!-- #post-1511 -->\n<\/div><div class=\"c-block-card-grid-scroll__column\">\n<div id=\"post-1392\" class=\"c-block-card post-1392 page type-page status-publish has-post-thumbnail hentry content-classification-personal-loans topic-guide-to-personal-loans cluster-about-personal-loans\">\n\t<div class=\"c-block-card__inner c-block-card__inner--large\">\n\t\t\t<a class=\"c-block-card__image-wrapper\" href=\"https:\/\/www.nerdwallet.com\/au\/loans\/personal-loan-vs-credit-card\" rel=\"bookmark\">\n\t\t<img loading=\"lazy\" width=\"460\" height=\"244\" decoding=\"async\" src=\"https:\/\/www.nerdwallet.com\/au\/wp-content\/uploads\/sites\/3\/2022\/10\/loan-vs-credit-card-e1723151009498-460x244.jpg\" class=\"c-block-card__image wp-post-image\" alt=\"Personal Loan Vs. Credit Card: What\u2019s The Difference?\" \/>\t<\/a><!-- .c-entry__thumbnail -->\n\t\t\t<div class=\"c-block-card__content-wrapper\">\n\t\t\t\n<h4 id=\"personal-loan-vs-credit-card-what%e2%80%99s-the-difference\"  class=\"c-block-card__title\">\n\t<a href=\"https:\/\/www.nerdwallet.com\/au\/loans\/personal-loan-vs-credit-card\" rel=\"bookmark\" class=\"c-block-card__title-link\">\n\t\tPersonal Loan Vs. Credit Card: What\u2019s The Difference?\t<\/a>\n<\/h4>\n\n\t<div class=\"c-block-card__content\">\n\t\t<p>Personal loans give you a lump sum for large purchases. Credit cards work better for smaller, everyday expenses.<\/p>\n\t<\/div>\n\n\t<div class=\"c-block-card__authors\">\n\t\t\t\t<div class=\"nw-written-by-layout-inline\">\n\t\t\t\n\t\t\t<div class=\"nw-written-by-layout-inline--wrapper\">\n\t\t\t\t<a href=\"https:\/\/www.nerdwallet.com\/au\/author\/katia-iervasi\" class=\"author url fn\" rel=\"author\"><img loading=\"lazy\" decoding=\"async\" width=\"32\" height=\"32\" src=\"https:\/\/www.nerdwallet.com\/au\/wp-content\/uploads\/sites\/3\/2022\/10\/katia-40x40.jpeg\" class=\"avatar avatar-32 photo wp-post-image\" alt=\"\" \/>Katia Iervasi<\/a>\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n\t\t<\/div><!-- .c-card__content-wrapper -->\n\t<\/div>\n<\/div><!-- #post-1392 -->\n<\/div><div class=\"c-block-card-grid-scroll__column\">\n<div id=\"post-1460\" class=\"c-block-card post-1460 page type-page status-publish has-post-thumbnail hentry content-classification-home-loans topic-home-loan-basics cluster-home-loan-basics\">\n\t<div class=\"c-block-card__inner c-block-card__inner--large\">\n\t\t\t<a class=\"c-block-card__image-wrapper\" href=\"https:\/\/www.nerdwallet.com\/au\/home-loans\/what-is-a-mortgage-home-loan\" rel=\"bookmark\">\n\t\t<img loading=\"lazy\" width=\"460\" height=\"245\" decoding=\"async\" src=\"https:\/\/www.nerdwallet.com\/au\/wp-content\/uploads\/sites\/3\/2022\/11\/what-is-a-home-loan-e1723052427979-460x245.jpg\" class=\"c-block-card__image wp-post-image\" alt=\"What Are Mortgages and How Do They Work in Australia?\" \/>\t<\/a><!-- .c-entry__thumbnail -->\n\t\t\t<div class=\"c-block-card__content-wrapper\">\n\t\t\t\n<h4 id=\"what-are-mortgages-and-how-do-they-work-in-australia\"  class=\"c-block-card__title\">\n\t<a href=\"https:\/\/www.nerdwallet.com\/au\/home-loans\/what-is-a-mortgage-home-loan\" rel=\"bookmark\" class=\"c-block-card__title-link\">\n\t\tWhat Are Mortgages and How Do They Work in Australia?\t<\/a>\n<\/h4>\n\n\t<div class=\"c-block-card__content\">\n\t\t<p>Home loans are not overly complicated, but having a rudimentary understanding of the fundamentals will give you a head start as you set out on the great Aussie home ownership journey. <\/p>\n\t<\/div>\n\n\t<div class=\"c-block-card__authors\">\n\t\t\t\t<div class=\"nw-written-by-layout-inline\">\n\t\t\t\n\t\t\t<div class=\"nw-written-by-layout-inline--wrapper\">\n\t\t\t\t<a href=\"https:\/\/www.nerdwallet.com\/au\/author\/georgia-rose\" class=\"author url fn\" rel=\"author\"><img alt='Georgia Rose profile photo' decoding=\"async\" src='https:\/\/secure.gravatar.com\/avatar\/6b9e515bc45988c863ac8ac39e7bdd34?s=32&#038;d=mm&#038;r=g' class='avatar avatar-32 photo' height='32' width='32' \/>Georgia Rose<\/a><a href=\"https:\/\/www.nerdwallet.com\/au\/author\/alan-hartstein\" class=\"author url fn\" rel=\"author\"><img loading=\"lazy\" decoding=\"async\" width=\"32\" height=\"32\" src=\"https:\/\/www.nerdwallet.com\/au\/wp-content\/uploads\/sites\/3\/2022\/10\/Alan-Hartstein-portrait-40x40.jpeg\" class=\"avatar avatar-32 photo wp-post-image\" alt=\"\" \/>Alan Hartstein<\/a>\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t<\/div>\n\t\t<\/div><!-- .c-card__content-wrapper -->\n\t<\/div>\n<\/div><!-- #post-1460 -->\n<\/div>\t\t<\/div>\n\t<\/section>\n\n","protected":false},"excerpt":{"rendered":"<p>A loan is a sum of money borrowed from a creditor that you pay back with interest. Loans can be secured or unsecured.<\/p>\n","protected":false},"author":4,"featured_media":1534,"parent":351,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"page-templates\/article-sidebar.php","meta":{"_acf_changed":false,"apple_news_api_created_at":"","apple_news_api_id":"","apple_news_api_modified_at":"","apple_news_api_revision":"","apple_news_api_share_url":"","apple_news_coverimage":0,"apple_news_coverimage_caption":"","apple_news_is_hidden":false,"apple_news_is_paid":false,"apple_news_is_preview":false,"apple_news_is_sponsored":false,"apple_news_maturity_rating":"","apple_news_metadata":"\"\"","apple_news_pullquote":"","apple_news_pullquote_position":"","apple_news_slug":"","apple_news_sections":"[]","apple_news_suppress_video_url":false,"apple_news_use_image_component":false,"footnotes":"","_nw_pros_cons_block_schema":""},"content-classification":[282],"topic":[297],"cluster":[388],"pp_author":[88],"acf":[],"apple_news_notices":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What Is a Loan in Australia? - NerdWallet<\/title>\n<meta name=\"description\" content=\"A loan is a sum of money borrowed from a creditor that you pay back with interest. 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