Pitfalls, Complaints and Free Help
Personal loan mistakes to avoid in Australia: 12 common traps and what to do instead
The most common and costly personal loan mistakes Australians make, from multiple applications and long terms to add-on insurance and ignoring hardship, with practical fixes.
The most costly personal loan mistakes are usually made before you sign: applying to several lenders at once, comparing headline rates instead of total cost, choosing a term longer than the purchase lasts, accepting add-on insurance you do not need, and consolidating debts without closing the old accounts. After you sign, the biggest mistake is waiting until you have already missed payments before asking for help. Each of these is avoidable with a few checks, and free help is available from the National Debt Helpline on 1800 007 007.
This is the starting guide for this section. Related guides: what to do if your personal loan is declined, hardship notices, debt consolidation loan risks, personal loan scams and complaints and free help. Figures are illustrative.
Mistakes before you apply
1. Applying to many lenders at once
Each full application usually records a credit enquiry. Several in a short period can make later lenders cautious and lower your chances. Instead: check your credit reports, use soft-check quotes where possible, and apply to one lender at a time. See credit scores.
2. Not checking your credit report first
An error, an unpaid old phone bill or an account you forgot about can cause a decline. Instead: get free reports from Equifax and Experian and correct errors before applying.
3. Borrowing the maximum
The largest amount a lender will approve leaves you only its chosen buffer. Instead: work out what you need and what your budget comfortably supports; see how much can I borrow.
4. Understating expenses or debts
It may get the loan approved, but it can leave you with repayments you cannot afford and weaken a later complaint. Instead: give an honest, complete picture.
Mistakes when comparing
5. Comparing interest rates only
| What people compare | What they should compare |
|---|---|
| Advertised "from" rate | Your personalised rate after assessment |
| Interest rate | Comparison rate and total amount repayable |
| Monthly repayment | Total cost over the term, plus likely exit fees |
See the comparison rate guide and comparing three quotes.
6. Choosing a term longer than the purchase lasts
On $20,000 at 11.5%, going from three years to seven lowers the repayment from about $660 to about $348 a month but adds about $5,470 in interest. Paying for a holiday or a phone over seven years means paying long after it is gone. Instead: match the term to the life of what you are buying.
7. Ignoring early repayment terms
If you might pay out early, a fixed loan with an early repayment fee can become the most expensive option. Instead: check the exit costs; see paying off early.
Mistakes at signing
8. Accepting add-on insurance without thinking
Consumer credit insurance and similar products are optional. They may duplicate cover you already have through superannuation or income protection, and some people are not eligible to claim. Instead: say no unless you have checked what it covers, what it costs and whether you could claim.
9. Signing without reading the financial table
The contract must show the amount of credit, the annual percentage rate, repayments and fees. Instead: check these against the quote and recalculate the repayment with the repayment calculator.
10. Guaranteeing or co-signing without advice
A guarantor or co-borrower can be pursued for the whole debt. Instead: guarantors should get independent legal advice and understand they may be asked to pay.
Mistakes after you sign
11. Consolidating debts and keeping the cards open
The most common consolidation failure is ending up with the new loan and new card balances. Instead: close or reduce card limits as part of the plan; see debt consolidation risks.
12. Waiting until you are in default to ask for help
Once repayments are missed, fees and default notices follow, and a late payment can stay on your credit report for two years. Instead: contact the lender as soon as you foresee a problem and give a hardship notice under section 72 of the National Credit Code; see hardship notices.
Quick self-check before signing
- I know my comparison rate and total repayable for my amount and term
- I have listed every fee in dollars
- The term is no longer than the purchase will last
- I can still afford the repayment if my costs rise
- I have declined optional insurance I do not need
- I know how to contact the lender's hardship team and AFCA
- The lender holds an Australian credit licence
The personal loan checklist has a printable version.
Frequently asked questions
Is it a mistake to use a broker?
Not necessarily. A broker can save time and match you to lenders. Ask how they are paid, which lenders they compare and whether they charge you a fee. Brokers providing credit assistance must hold a licence or be an authorised representative.
Can I cancel a personal loan after signing?
A regulated credit contract has no general cooling-off period. If funds have not been drawn, ask the lender; otherwise you may need to pay it out, possibly with fees.
Is it a mistake to borrow for a deposit or investment?
Borrowing to invest or for a home deposit carries extra risks and may affect home loan eligibility. Get personal financial advice before doing so.
What if I already made several of these mistakes?
Focus on what you can control now: repayments on time, a budget, and early contact with the lender if needed. A financial counsellor can help you prioritise.
Sources and where to check
- ASIC Moneysmart — personal loans, add-on insurance and budgeting
- ASIC — check credit licences on the professional registers
- National Debt Helpline — free financial counselling, 1800 007 007
- Australian Financial Complaints Authority — free complaints service
