Low interest personal loans
What’s the most important consideration when you’re taking out a personal loan? One of the most obvious factors is the interest rate on your personal loan. Typically, the lower the interest rate, the less you’ll have to pay each month in interest charges.
Of course, when comparing low interest personal loans, the interest rate is just one of many features to consider, but it’s certainly an important one if you want to keep the costs of borrowing money to a minimum.
How can I get a low interest personal loan?
There are hundreds of different personal loans on the market, which makes sorting through them quite daunting. Here are three tips to get you started:
- Decide whether you need a secured or unsecured loan.
When you take out a loan, you will normally get a choice between a secured loan or an unsecured loan. A secured loan is protected by an asset such as a car which the lender can claim if you default on your loan. This makes your debt less risky. In return, you will hopefully get a relatively low interest rate loan.
An unsecured loan is one that doesn’t have an asset attached to it as security. They are convenient if you don’t own a high-value item, however banks are more likely to charge a higher interest rate to account for the added risk.
Low rate personal loans are less likely to be unsecured but it is always worth investigating the options to find the best deal you can.
- Check your credit score.
Having a good credit score is important when applying for a personal loan. In fact, some lenders offer people with a good credit history lower interest personal loans. Check your credit score and if it needs improving, work through our tips on how to build up your credit score before you apply for a personal loan.
- Compare the low rate personal loans on the market.
Personal loan interest rates can vary widely so it’s worth doing your research before you start talking to a specific lender. Find out which banks offer low interest personal loans and see if they fit your personal financial needs.
- Use the comparison rate to check for hidden fees and charges.
Looking for a low interest personal loan is a good strategy but don’t forget to check the fees and charges. For example, a low-interest personal loan with a high application fee may ultimately turn out to be more expensive than a higher-interest personal loan with lower ongoing costs. To get a better idea of the total cost of a low rate personal loan, it’s worth looking at its comparison rate.
The comparison rate on a personal loan incorporates all standard fees and charges attached to the personal loan. The comparison rate is designed to give you a more accurate indication of how much your personal loan will cost over the life of your loan than the advertised rate.
Comparison rates also help you compare low interest rate personal loans more accurately. For example, if a comparison rate is significantly higher than the advertised rate, it’s likely that there are high fees or a scheduled rate increase built into that loan.
Just bear in mind that the comparison rate doesn’t take into account any ‘optional’ charges such as late fees so when you have narrowed down your choice it’s still worth taking a closer look at the fine print before making your final decision.
Fixed vs variable interest rate?
One of the most frequently asked questions is should I take out a variable loan or a fixed loan?
You can get personal loan interest rates that are fixed or variable so it really comes down to how you prefer to structure your finances.
Fixed rate personal loans are great for people who like financial stability, as you will always pay the same amount each month. If you opt for a variable rate personal loan, your rate might drop if there’s an official rate cut, however it’s also possible your interest rate will rise, making it harder to cover the repayments.
Which bank has the lowest interest rate on personal loans?
It’s impossible to say which bank has the best personal loan interest rate. We all have different priorities and different financial goals, so what might be a good loan for you, could in fact be a bad match for someone else.
That said, it is always good to get a gauge of what the lowest rates for personal loans are to give you a ball park to work from. A good way of doing this is by looking through our comparison tables to see what rates are on offer, then use this research to have an informed conversation with lenders.
What can I use a low rate personal loan for?
Personal loans can be used for all sorts of expenses – buying a car, taking a holiday, undergoing renovations or consolidating debt. Just remember that the bank won’t just write you a blank cheque. They will want to know what you need the money for and how you are planning to pay it back.
Tips for reducing your interest charges
- Early exit / extra repayments
Low interest rate loans can be a good way to minimise the cost of your personal loan however the fastest way to reduce the amount of interest you pay is by making extra repayments. Getting ahead on your personal loan repayments can bring you closer to paying your loan off ahead of schedule, which can mean ultimately paying less total interest over the lifetime of the loan.
However, some lenders charge fees for making extra repayments or exiting a low rate personal loan early, to make up for the interest payments they’d be missing out on. Be sure to check whether getting out of debt with your lender won’t accidentally cost you more than you expected!
- Debt Consolidation
Sometimes people find themselves juggling a range of debts from credit cards to car loans. Juggling all of these repayments can be tricky to manage, not to mention rough on your finances, particularly if they are attracting multiple fees and high interest rates.
One way to manage multiple debts is to consolidate them into one personal loan. By using this personal loan to pay off your other debts, you’ll be left with just the one monthly repayment to budget for. If you’re careful and conscientious, you can find yourself debt-free much faster than you may have expected.
Debt consolidation can also reduce the fees and charges you are paying if you have reduced your debt to just one loan.
When you're looking for the best debt consolidation personal loans in Australia, keep in mind that some lenders may not allow all of their personal loan offers to be used for debt consolidation, so be sure to check the terms and conditions.
- Be wary of redraw facilities
Some low interest personal loans offer a redraw facility, which lets you free up some of the extra money, if you’re ahead on your personal loan repayments, subject to the lenders terms and conditions. They provide people with added flexibility however they need to be used with caution. Every time you take money out of your loan, you’re effectively pushing back the time it takes for your to pay off your loan, and you will end up paying more interest in the long run.
No deposit loans / 100% loans
If you don’t have a lot of cash saved up in your bank account, paying a full deposit on a low interest personal loan can be a challenge.
If you choose a personal loan with a high loan to value ratio (LVR), you can pay a smaller deposit up-front, and borrow a higher percentage instead. Some lenders also offer 100% loans, where you pay no deposit, and borrow the full amount instead.
Just remember that these loans represent higher risks to their lenders, so they tend to come with higher interest rates. You may want to consider whether it would be better for your finances to make these higher repayments, or to save up a deposit and hopefully enjoy a personal loan with low interest.
What is the rate of interest for a personal loan?
The interest rate on a personal loan is the amount the bank will charge you for taking out your loan. It is almost always expressed as an annual percentage. There is no one set interest rate for a personal loan. With a bit of research, however, you can understand what types of loans are on offer and what kind of interest rates lenders are offering for these personal loans.
How can I get a low interest personal loan?
- Compare the market: look at what interest rates the big four are offering but compare this with smaller lenders.
- Look at the comparison rate. If it is more than 0.2 per cent higher, have a good look at the terms and conditions to see what the fees are.
- Understand the different rates for secured and unsecured loans. This might help you decide which type of loan you want.
- No matter who you sign up with, ask for a lower rate or for any fees to be waived.
Can I get a personal loan from a bank?
Yes. If you have a relatively good credit history, a regular income and a decent deposit or security for the loan you are likely to be eligible for a personal loan. This will vary from lender to lender however so it is important to be prepared before you apply.
- Research how much you can afford to borrow. Use our personal loan calculator to work out what your monthly repayments might be and assess whether you could meet these.
- Factor in a buffer. Even if you are on a fixed rate personal loan it is worth including a buffer in your budget. Rates are not the only variable in life – you might be hit with a big expense or temporarily off work so it is worth making sure you have enough money to cover any sudden expenses. It will also show the bank that you want to borrow responsibly.
- Get your paperwork in order. Most lenders will need to see proof of income, proof of age, address.
What is the best interest rate on a personal loan?
Lenders will give the best rates to people who have an impeccable credit history, a good, regular source of income and a decent deposit or form of security. If you don’t quite fit this description, that’s ok, however if you might have to pay a little bit more for your loan.
How is interest calculated on a personal loan?
Interest is calculated as percentage of the amount you owe. The interest rate that you see on advertised is how much your lender charges annually, however this is typically calculated daily and includes any repayments and interest charges you might make throughout the year.
Compare low interest personal loans
A low interest personal loan could potentially save you pockets full of cash, and by comparing the additional features and benefits offered by different lenders, you can find a deal that’s perfect for your financial situation.
Start your financial journey by comparing low interest personal loans at RateCity – before you know it, you could have the money you need to make your dreams come true.