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Learn more about personal loans

Advantages and disadvantages of a variable interest rate

When you compare the advertised interest rates for variable rate personal loans, keep in mind that what you see may not end up being what you get. If your lender cuts its interest rates, you may end up with lower monthly repayments than you initially budgeted for, leaving you with some surplus cash available.

While you may want to put these savings to use somewhere else, many variable rate personal loans also offer the flexibility to pay extra onto your loan, allowing you to get ahead of your repayment schedule, bringing you closer to fully paying off your personal loan and making an early exit.

However, it stands to reason that if interest rates on your personal loan can fall, they can also rise in the right economic conditions. Increasing interest rates can lead to more expensive monthly personal loan repayments, which can leave you short if you haven’t budgeted accordingly. This can make variable rate personal loans a bit more high-maintenance to look after than their fixed rate counterparts.

Comparison rate

While it’s worth comparing the advertised interest rates when choosing a lender for your personal loan, it’s also worth remembering that the lowest advertised interest rate doesn’t guarantee that you’re getting the cheapest personal loan deal available. Even if your lender doesn’t raise its rates, a low interest personal loan that charges high fees could be ultimately more expensive overall than a personal loan with higher interest rates and lower fees and charges.

One alternative is to look at each personal loan’s Comparison Rate, which combines its advertised interest rate with its standard fees and charges, to provide a more accurate guideline of the approximate costs of different personal loans.

It’s also worth keeping in mind that the each lender may charge nonstandard fees that aren’t included in the personal loan’s Comparison Rate. Alternatively, they may offer extra features and benefits that could make their personal loan more appealing to you. It’s worth doing your homework after using the Comparison Rates to narrow down your shortlist of potential personal loans.

Debt consolidation

If you owe money to a variety of different lenders, then you may find yourself struggling to manage multiple repayments each month, as well as paying interest on each debt, each at a different rate.

A simpler option could be to take out a personal loan to consolidate these debts. Not only would this mean making only one repayment per month, but you’d also be making just the one interest payment per month, which could potentially work out cheaper than the previous arrangement.

Not every variable rate personal loan can be used for debt consolidation, so it’s a good idea to check first when making your comparisons, if that is your goal.

Secured/unsecured personal loans

If you’d prefer to keep your personal loan’s interest rates on the low side, then you may want to consider securing your loan. Secured personal loans guarantee the sum you borrow against the value of an asset that you own, whether that’s a car, equity in your property, or something similar. Of course, to apply for one of these loans, you’ll need one of these assets with enough value to reduce the lender’s financial risk, so you can in turn enjoy a lower interest rate.

Unsecured personal loans are also available, for when you don’t have access to a high-value asset, or if you’d prefer not to risk losing your asset to the lender if you’re unable to make your repayments. However, due to their relatively high lender risk, these personal loans tend to have higher average interest rates than similar secured personal loans.

Early exit/extra repayment penalties

One reason why many people love variable interest rate loans is the flexibility they offer.

If your lender chooses to cut interest rates, your monthly repayments could end up going down as a result, which gives you a choice – do you keep the savings from this discount, or do you take this opportunity to pay a little bit extra onto your loan, potentially paying it off early and ultimately paying a bit less in interest?

If this prospect appeals to you, keep in mind that some lenders charge fees for making extra repayments on a personal loan or for making an early exit, to help make up for the interest payments they’d be missing out on. These fees tend to be more common for Fixed Rate personal loans with pre-set repayment plans, though they are sometimes also applicable for Variable Rate Personal Loans.

Don’t end up surprised by extra charges if you try to pay off your personal loan early!

Redraw Facility

When you have extra money available in your bank account, whether it’s from a bonus, a tax refund, or left over in your budget following a rate cut, you may decide that making an extra repayment on your personal loan would be a great idea to bring you closer to getting your loan fully paid off.

But what if there was an emergency and all of your cash was tied up in your personal loan?

With this in mind, some lenders include a Redraw Facility as part of their personal loans. This nice little feature can be used when you get ahead on your personal loan repayments, and allows you to withdraw the surplus balance, subject to your lender’s terms and conditions.

By providing you with extra flexibility in how you use your finances, you’ll have the option to make extra repayments onto your personal loan with confidence that you can still access this money again if you really need it.

100% Personal Loans

Do you have a deposit all saved up and ready to get your personal loan started? No? Well, that doesn’t mean you have to miss out on your dream wedding or home renovation.

Some lenders offer high LVR (Loan to Value Ratio) personal loans, where your deposit is smaller, and you borrow a greater percentage of your total instead. Some lenders can even provide personal loans where you borrow 100% of the balance, with no deposit required.

If you do choose a high LVR or 100% personal loan, remember that you may find yourself paying a higher than average rate of interest, to make up for increased financial risk to your lender.

It may be worth weighing up whether it would be more affordable for you to make higher monthly repayments, or to save up a full deposit before taking out a personal loan.

Compare variable rate personal loans

By comparing the different personal loans that are currently available, you can work out which lenders offer the features and benefits that will perfectly match the requirements of your financial situation.

At RateCity, you can compare a wide variety of personal loan providers, so start your search today and enjoy the benefits tomorrow! Or at least, when you get approval from the lender…

Frequently asked questions

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.

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.

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.

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 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.

Do student personal loans require security?

While some personal loans can be secured by the value of an asset, such as a car or equity in a property, student personal loans are often unsecured, which typically have higher interest rates.

Some lenders also offer guarantor personal loans to students. These loans have lower interest rates, as a guarantor (usually a relative of the borrower with good credit) will fully or partially guarantee the loan, taking on the financial responsibility if the borrower defaults.

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.

Are there low doc personal loans?

Self-employed borrowers may be eligible for low doc personal loans, which require less documentation in their application process than many other personal loan options.

It’s important to remember that though low doc personal loans may require less paperwork, you may need to provide additional security, or pay a higher interest rate.

What do credit scores have to do with personal loan interest rates?

There is a strong link between credit scores and personal loan interest rates because many lenders use credit scores to help decide what interest rates to offer to potential borrowers.

If you have a higher credit score, lenders will probably classify you as a lower-risk borrower. That means they’ll be keen to win your business, so they may offer you a lower interest rate if you apply for a personal loan.

If you have a lower credit score, lenders will probably classify you as a higher-risk borrower. That means they might be concerned about you defaulting on the loan and costing them money. As a result, they might protect themselves by charging you a higher interest rate.

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.

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 unemployed single parents get personal loans?

It can be more difficult for unemployed borrowers to successfully apply for a personal loan. Most lenders require borrowers to have a regular income available to cover the cost of loan repayments.

If you’re self-employed, or if less than half of your income comes from Centrelink, you may not be eligible for some personal loan options. Consider contacting the lender before applying.

Can I get a no credit check personal loan?

Personal loans with no credit checks are available and called ‘payday loans’. These are sometimes used as short-term solutions for cash-strapped Australians. They often carry higher interest rates and fees than regular personal loans, and individuals risk putting themselves into a worsened cycle of debt.

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.

How do I find out my credit rating/score?

You're entitled to one free credit report per year from credit reporting bodies like Equifax, Dun & Bradstreet, Experian and the Tasmanian Collection Service. You can also get a free report if you’ve been refused credit in the past 90 days.

Credit reporting bodies have up to 10 days to provide reports. If you want to access your report sooner, you’ll probably have to pay.

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.

Can I include my spouse’s income on a personal loan?

If you apply for a joint personal loan with your spouse, you can include their income on the application. If approved, they then become jointly liable for the loan.

Both you and your spouse need to meet the eligibility criteria, such as income, age, and residency requirements, as stipulated by the lender. A joint loan could increase your chance of approval for a higher amount, as both borrowers’ incomes are assessed when determining borrowing capacity. 

Can I get a fast loan with bad credit?

Some lenders offer fast loans to borrowers with bad credit. Providers of small payday loans of up to $2000 or medium amount loans of up to $5000 may have no credit checks, though these lenders will usually want to confirm you can afford its loans on your income.

How long does it take to get a $5000 loan?

Depending on the lender, personal loans and medium-amount loans for $5000 can sometimes be approved in under an hour, and give you access to the money the same day. Other loans may take 24 hours or longer to assess your application, and you may not get the money for a few days.