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Learn more about personal loans

How many years can I get a personal loan for? 

Many personal loans are repaid over relatively short terms, from less than 12 months, up to five years. However, some lenders offer the option to pay back a personal loan over a longer length of time, from five years to ten years, or even longer.

Depending on your financial situation, a long personal loan term may help you enjoy more affordable repayments, though it’s important to keep the total cost of interest in mind.  

How do long personal loans work?

When you take out a personal loan with a long loan term, you agree to repay what you’ve borrowed, plus interest, by making a certain number of payments over time.

The longer your loan term, the more payments you’ll need to make, each one for a smaller percentage of your loan principal. This means that if you opt for a long loan term, each repayment will be cheaper than if you opt for a short loan term.  

It’s important to remember that for every personal loan repayment you make, you’ll be charged interest on the principal still owing on your loan. If you take a longer loan term, you’ll make a greater number of repayments, and therefore you’ll be charged interest a greater number of times than if you take a shorter loan term. While your monthly loan repayments may be cheaper with a longer loan term, you may end up paying much more in interest than if you’d opted for a shorter loan term.

EXAMPLE:

Mathias wants to borrow $10,000 for a renovation, from a lender with an interest rate of 10%. Before he chooses a loan term, he performs a personal loan comparison to see how much the loan will cost him, both from month to month, and in total:

Loan term Monthly repayment Total cost
2 years $461 $11075
5 years $212 $12,748
10 years $132 $15,858

Source: MoneySmart

Mathias must decide which loan term will best suit his finances. On one hand, a shorter loan term will cost him more from month to month, putting more pressure on his household budget. But on the other hand, a long loan term will ultimately cost him much more in total – over 50% of his loan principal, in the case of the 10-year term!

Monthly, fortnightly, or weekly repayments?

Some lenders will allow you to make fortnightly or weekly personal loan repayments instead of monthly, which can sometimes be a better fit your household budget.

The other potential advantage of making more frequent personal loan payments is that you may be able to pay off your loan a little bit faster, thereby saving on interest.

Many lenders calculate monthly payments on the assumption that one month lasts for an average of four weeks. But because this isn’t an exact figure, 26 fortnightly payments over a 52-week year can end up being the equivalent of making 13 monthly repayments, rather than just 12. By paying fortnightly, rather than monthly, you can effectively make one extra payment per year – that may not sound like much, but it can add up, especially over a long-term personal loan.

EXAMPLE:

Going back to Mathias and his $10,000 personal loan at 10% interest, if he took a 10-year loan term with monthly repayments, every year he’d make twelve payments of $132. By paying $1584 per year, he’d pay a total of $15,858 at the end of the term.

If Mathias cut his repayments in half but paid them every two weeks, each year he’d make 26 payments of $66, adding up to $1716 per year. This would let him finish his loan in just 8 years and 10 months, paying a total of $15,028 – a saving of $830.

Source: MoneySmart

Can I repay a long personal loan early?

Many lenders will allow you to make extra repayments onto your personal loan whenever you have spare funds available in your household budget. These extra repayments can help to reduce the principal you owe, reducing the interest you’re charged in the future. If you make enough extra repayments on your personal loan, you may find yourself able to exit your loan ahead of schedule.

Keep in mind that some lenders charge fees for making extra repayments or for exiting a loan early, the cost of which may outweigh the potential interest savings of paying down your loan balance. If you expect you may be able to get your loan paid off early, it’s worth checking whether a potential lender charges early exit fees before signing up for a personal loan.

EXAMPLE

When Mathias commits to his long personal loan, he starts making regular repayments, but also adds his tax refund onto the loan each year. Partway through his loan term, he receives a pay rise at his job, allowing him to put a bit more of his household budget towards his loan each payday. These extra payments help to shrink the principal amount still owing on the loan, thus reducing the interest he’s charged on this amount.

These extra payments add up over time, and lead to Mathias clearing his $10,000 debt plus interest well ahead of his scheduled term.

If Mathias had chosen a personal loan with an early exit fee, he’d have to pay his lender to leave his personal loan early, potentially undoing much of his interest savings.

But because he did his research and compared personal loans to find a lender with no exit fees, he can pay off his debt early with no extra costs to pay.

Can I refinance a long personal loan?

Much like home loans and some other types of credit, it is possible to refinance a personal loan, which involves swapping your current personal loan for a new one, often with a different bank or lender.

Borrowers may choose to refinance a personal loan if their financial circumstances change, leaving them unable to afford their current personal loan. Some borrowers also choose to refinance when they think they can get a better personal loan deal elsewhere.

When refinancing a personal loan, it’s not only important to compare the interest rates and fees to calculate their impact on your household budget, but it’s also important to keep the length of your personal loan term in mind.

If you refinance from a short personal loan to a long personal loan, your individual repayments may become more affordable, but you may end up paying more for your loan in total.  

If you refinance from a long personal loan to a shorter loan term, you’ll likely pay less in total interest, though your repayments may be higher.

Frequently asked questions

Can I merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full term.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

Is a personal loan a variable or fixed-rate loan?

Depending on the personal loan lender, you may be able to choose between a fixed and a variable interest rate. But, there are a few distinct differences between the two, so it’s important to weigh up the pros and cons before deciding on what’s right for you.

A fixed interest rate loan gets you the convenience of knowing exactly how much you need to repay each fortnight or month. On the other hand, you generally won’t be able to make lump sum or advanced payments to close your personal loan early - or at least not without a penalty.

With a variable interest rate personal loan, you may be able to get a longer loan repayment term, with the option of paying off the loan early. You typically won’t need to pay any additional charges for an early full repayment either. The potential disadvantage with an interest rate that can change is that your repayment is not entirely predictable, as it can fluctuate with the market. However, you’ll likely have more options as more lenders offer a variable interest rate personal loan.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.

Can you pay off a quick loan early?

Many lenders will allow you to make extra repayments onto a quick personal loan when you can afford them, or even exit the loan early, which can help reduce the total interest you are charged. Be sure to check your quick loan’s terms and conditions, as some lenders charge early exit fees for paying off a loan ahead of schedule.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.