Low-interest personal loans
What is a low-interest personal loan?
A personal loan is a loan that generally ranges from $2,000 to $100,000, usually for a period of one to five years.
A low-interest personal loan is one that has an interest rate below the market average.
Please note that the market average is always changing, so it’s impossible to put a definitive value on a low-interest personal loan.
How can I get a low-interest personal loan?
There are four things to do if you want to get a low-interest personal loan:
- Decide whether you need a secured or unsecured loan
- Check your credit score
- Compare a range of low-interest personal loans
- Use the comparison rate to check for hidden fees and charges
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 usually get a lower interest rate than if your loan was unsecured.
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 more likely to be secured than 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 can be 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.
Low-interest personal loans at a glance
- Australia has dozens of personal loan providers
- Loans are usually from $2,000 to $100,000
- Loan terms are usually from one to five years
- Interest rates are either fixed or variable
- Loans can be either secured or unsecured
Fixed vs variable interest rate?
Before deciding on a fixed rate or a variable rate for your low-interest personal loan, you need to weigh up the pros and cons.
Here are some of the pros and cons of fixed-rate personal loans:
- Pay the same even when rates rise
- Easy to budget
- Pay the same even when rates fall
- Fixed loans are usually inflexible
Here are some of the pros and cons of variable-rate personal loans:
- Pay less if rates fall
- Variable loans are often flexible
- Pay more if rates rise
- Harder to budget
Fixed-rate personal loans are great for people who like financial stability, as you will always pay the same amount each month. However, you probably won’t be able to make extra repayments and will probably have to pay some sort of penalty fee if you want to refinance or close the loan ahead of schedule.
If you opt for a variable-rate personal loan, your rate might drop if there’s an official rate cut - but it’s also possible your interest rate will rise, making it harder to cover the repayments. Variable loans tend to be more flexible than fixed loans - you’re more likely to be allowed to make extra repayments or to close the loan early.
Which bank has the lowest interest rate on personal loans?
It’s impossible to say which bank has the lowest personal loan interest rate, for two reasons:
- Banks change their interest rates all the time
- Banks might have lower interest rates for one type of personal loan, but higher interest rates for another type of personal loan
The question of “Which bank has the best personal loan interest rates?” is also problematic. To understand why, take these two hypothetical situations:
- A personal loan with a higher interest rate and lower fees might actually cost you less money over the life of the loan than a personal loan with a lower interest rate and higher fees
- A higher-rate personal loan might suit you better than a lower-rate personal loan if it offers more flexibility (such as the ability to make extra repayments) and more features (such as a redraw facility)
We all have different priorities and different financial goals, so what might be a good personal loan for you might not be a good personal loan 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 standard to compare to. A good way of doing this is by looking through our comparison tables to see what rates are on offer, and to then use this research to have an informed conversation with lenders.
Helen wins and loses with a fixed-rate personal loan
Helen takes out a $20,000 personal loan to fund her wedding. The lender offers her a choice of paying it off in four years or five. She chooses four years: even though it means she will have to make higher monthly repayments ($488 v $406), it also means she will pay less in interest over the life of the loan ($23,436 v $24,332). Helen is offered the choice between a 7.50 per cent variable rate or an 8.00 per cent fixed rate. She is anxious about the thought of interest rates rising during her four-year loan term, so she decides to lock in the (higher) fixed rate. Helen feels vindicated several months later, when her lender increases the variable interest rate to 8.25 per cent. However, halfway through her loan term, she feels frustrated. Thanks to a tax refund, she now has enough money to close the loan early - but her lender won’t let her unless she pays a hefty break fee.
What can I use a low rate personal loan for?
Here are 10 ways you can use personal loans:
- Buying a car
- Taking a holiday
- Doing renovations
- Moving home
- Consolidating debt
- Funding a wedding
- Medical bills
- Vet bills
- School fees
- Legal fees
Personal loans can be used for all sorts of expenses – but just remember that the bank won’t write you a blank cheque. They will want to know what you need the money for and how you plan to pay it back.
Here are three tips for reducing your interest charges:
- Make extra repayments so you can exit early
- Consolidate several debts into one personal loan
- Play it smart with redraw facilities
Make extra repayments so you can exit early
A low-interest personal loan is an obvious way to minimise the cost of your personal loan. But some people don’t realise that you might save even more money by making extra repayments.
Getting ahead on your personal loan repayments can help you pay off your loan ahead of schedule, which can mean ultimately paying less total interest over the lifetime of the loan.
(Please note that, 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!)
Consolidate several debts into one personal loan
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.
Play it smart with redraw facilities
Some low-interest personal loans offer a redraw facility, which allow you to ‘borrow back’ money that you’ve paid off ahead of schedule (subject to terms and conditions). As a result, you might feel more comfortable making extra repayments.
That said, redraw facilities need to be used with caution. First, you might be charged a fee to redraw money. Second, every time you use a redraw facility, you’re effectively adding to your loan, which will mean having to pay more in interest.
Who offers low-interest personal loans?
- Credit unions
- Building societies
- Non-bank lenders
- Peer-to-peer lenders
What are no-deposit loans?
No-deposit loans, also known as 100% loans, are personal loans where you can borrow the full amount, without having to provide a deposit.
Most lenders prefer you to provide some sort of deposit, but some lenders offer no-deposit personal loans to people who might not have any savings. Just remember, though, that lenders regard these personal loans as riskier, so they tend to charge 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 are personal loan interest rates?
The interest rate on a personal loan is the amount the lender will charge you for taking out your loan.
Interest rates are 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.
What is the average interest rate for a personal loan?
There is no ‘average’ interest rate for a personal loan.
One reason is that lenders change their interest rates all the time, so the average is always changing.
Another reason is that there is no ‘average’ personal loan. Personal loans come in a range of flavours - each of which is priced differently. Examples include:
- Secured personal loans
- Unsecured personal loans
- Variable-rate personal loans
- Fixed-rate personal loans
- Deposit personal loans
- No-deposit personal loans
Secured personal loans usually have lower interest rates than unsecured personal loans. Variable-rate personal loans usually have lower interest rates (at least at the time the loan is taken out) than fixed-rate personal loans. Personal loans that require a deposit usually have lower interest rates than personal loans that don’t require a deposit.
How can I get a low-interest personal loan?
Here are four steps to take if you want 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 percentage points higher than the advertised rate, 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 personal loan you want.
- Negotiate. No matter who you sign up with, ask for a lower rate or for any fees to be waived. Lenders often give discounts to win business.
John negotiates a personal loan discount
John receives two nasty shocks in the space of a week. First, his beloved dog almost dies after getting hit by a car. Second, the vet charges $10,000 for the emergency surgery. John has almost no money in the bank, so he’s forced to take out a $10,000 personal loan. After comparing a range of different home loans, he decides to go with Lender X. But before signing on the dotted line, John tells lender X that he will instead take out a comparable loan with Lender Y unless he receives some sort of discount. Lender X doesn’t want to lose John’s business, so it agrees to reduce the loan’s application fee from $200 to $100 and to cancel the loan’s $10 monthly fee. As a result, John saves $340 over the life of the two-year loan.
Can I get a personal loan from a bank?
Yes, you can get a personal loan from a bank.
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 and proof of address.
What is the best interest rate on a personal loan?
There is no definitive “best” interest rate, because interest rates change all the time and different personal loan products suit different people.
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, it doesn’t necessarily mean you won’t be able to get a personal loan - but you might have to pay a higher interest rate and/or higher fees.
How is interest calculated on a personal loan?
Interest is calculated as percentage of the amount you owe. The interest rate that you see advertised is how much your lender charges annually (although this is typically calculated daily).
Compare low-interest personal loans
A low-interest personal loan could potentially save you hundreds or even thousands of dollars compared to a high-interest personal loan.
By comparing the interest rates of different personal loans, as well as any additional features and benefits offered, you can find the product that best suits your unique situation.
Imagine you wanted to take out a $40,000 personal loan over five years. Here’s how different interest rates would affect your repayments:
|Interest rate||Monthly repayments||Total repayments|
Start your financial journey by comparing low-interest personal loans at RateCity.