Fixed Rate Personal Loans
Considering a fixed rate personal loan? Find out what they are, how they work and compare the best offers with Savvy.
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If you’re looking to take out a personal loan, one of the options you’ll have is a fixed interest rate. But what does that mean? You can find out all about what they are and how they work, as well as compare a variety of competitive personal loan offers, right here with Savvy today. Get a free, no-obligation quote now!
What are fixed rate personal loans and how do they work?
A fixed rate personal loan is one of two types of interest rate which can apply to personal finance agreements, with the other being variable interest. Under this type of loan, the interest rate offered at the beginning of the loan is locked in and remains the same throughout your repayment period, regardless of the length.
This means the cost of your repayments will remain consistent, allowing you to budget around your repayments with more confidence and accuracy. You’ll know to set aside a certain amount each pay cycle to dedicate to your loan repayments.
Aside from this, though, the product itself works the same way as any other personal loan. You’ll still be able to borrow between $2,001 and $75,000 without the need to provide security (subject to your profile and lender) and space out your repayments over one to seven years on a weekly, fortnightly or monthly schedule.
How should I compare fixed rate personal loans?
There’s a variety of factors which should be considered when comparing the best fixed rate personal loan options for your needs, including:
- Interest rate: of course, your interest rate will be a major factor in determining the cost of your loan. You should always aim to secure the lowest possible rate, as even small differences can result in hundreds of dollars in savings, if not more.
- Loan amount: of course, you’ll need to ensure that you can actually borrow the amount you’re looking for as per your lender’s requirements. There’s no use entertaining offers from lenders who set their maximum loan amounts below what you need, for example.
- Loan terms: similarly, you should always stick to lenders who can accommodate your preferences in terms of your repayment period, as it’s important to ensure you give yourself the best chance of paying off your loan without any issues. Not all lenders will offer terms as short as one or as long as seven years.
- Fees: while there isn’t a long, detailed list of personal loan fees compared to other types of finance, it’s still important to consider establishment and ongoing charges when comparing. All personal loans will come with a comparison rate, which combines any establishment and ongoing fees with your interest into a single rate.
- Repayment flexibility: some lenders will allow you to make additional repayments and pay off your debt ahead of schedule without charging a fee, which can save a considerable amount of money. However, this won’t always be the case, which is why it’s important to compare if you want to have this option available to you.
- Eligibility: one of the most important things to be sure of prior to submitting your application is whether you’re eligible for the deal. Generally, the key points to meet are in relation to your age (18 or over), residency (citizen, permanent resident or eligible visa holder), employment and income (earning at lease $20,000 p.a. from stable sources, though some lenders will require more) and credit (no defaults, bankruptcy or court judgments).
What are the pros and cons of fixed rate personal loans?
The key pros and cons of fixing your interest rate on a personal loan are as follows:
Pros:
- Better for budgeting: because your rate is set in stone, you’ll know exactly how much is going towards your loan payments each week, fortnight or month.
- Protection against rate increases: if you’re taking out your loan at a time when rates are rising, you won’t have to worry about your loan increasing in cost.
- Wide range of options available: when comparing personal loan offers, you’ll find a wide and diverse variety of options to choose from.
Cons:
- Less flexibility: as mentioned, some lenders will charge early repayment fees on fixed rate personal loans, which could block you from saving more money.
- No benefit from rate drops: while you’re protected if rates go up, you won’t be able to take advantage of any decreases in interest.
- May be higher if rates are expected to rise: if you’re borrowing at a time when interest is expected to rise, you may have to pay more to fix your rate.
How much will my fixed rate personal loan cost?
The cost of your personal loan will be determined by a variety of factors, including the following:
- Interest: as mentioned, the higher your rate, the more you’ll have to pay overall.
- Fees: the same applies to fees, so seeking out loans with low or no fees will help your hip pocket.
- Loan amount: larger loan sums will attract more interest.
- Loan term: the faster you repay your loan, the less interest you’ll be required to pay overall.
- Whether you make early payments: making additional repayments above the minimum required amount will help you clear your debt sooner and save on you interest.
The following table demonstrates how much lower rates can save you in interest over the life of your loan:
| Loan amount | 7.50% p.a. | 8.50% p.a. | 10.00% p.a. |
|---|---|---|---|
|
$20,000 |
$4,046 |
$4,620 |
$5,497 |
|
$30,000 |
$6,069 |
$6,930 |
$8,245 |
|
$50,000 |
$10,114 |
$11,550 |
$13,742 |
Calculations based on a loan repaid monthly over five years.
What can I use a personal loan for?
Unlike home or car loans, which are required to be used for the asset they’re purchasing, you can make use of your personal loan funds for a variety of different purposes. Some of the more common reasons people take out personal loans include:
- Consolidating outstanding debts into one payment, especially those which come with varying schedules and high interest rates
- Covering the cost of your dream wedding
- Helping out with planning your next holiday, regardless of whether it’s a trip up the coast or an expansive overseas getaway
- Giving you the funds you need to pay for any unexpected medical expenses, both for your family and your pets
- Paying for home improvements and renovations around your property
- Purchasing a vehicle which may not qualify for standard secured car finance, such as one which is older than 25 years
Types of personal loan
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The differences between fixed and variable interest rates
Performance across the loan
Before all else, it’s important to understand the difference in how these two types of rates work. While fixed interest rates remain the same throughout the term, variable rates are left open to fluctuation. This can open you up to savings if market conditions are right, but you may end up paying more for your loan if rates increase during your loan term.
Base rate
Whether fixed rates offered by lenders are higher or lower than variable rates at the point you apply for your loan will depend on the state of the Australian finance market. Lenders may set their minimum fixed rates at a higher level than variable rate minimums when they expect rates to increase, as they won’t receive the same benefit from their customers paying at a rising rate across their term. The reverse is true if rates are set to fall.
Budgeting
One of the primary benefits of a fixed rate is its accuracy when it comes to budgeting, as mentioned, but the opposite can be true for variable rates. If you take out a personal loan during a particularly turbulent period in the market for rates, your repayments could, in theory, experience change with every instalment. If you value certainty when it comes to making repayments, fixed rate finance is the best option for you.
Potential savings
Whether you’ll enjoy savings under either a fixed or variable interest rate is contingent on how your lender’s rates perform throughout your term. Taking out a loan with a fixed rate when the market is at a low point will protect you against having to potentially pay hundreds of dollars more, while a variable rate established just prior to a fall in rates could help reduce your overall outlay significantly.
Repayment flexibility
Most personal loans in Australia enable borrowers to make extra payments on top of the minimum required amount. However, while some fixed rate loans may charge you to do so, this generally isn’t the case with variable rate loans. Making additional repayments can help you save a significant amount throughout your agreement. For instance, by contributing an extra $100 each month to your $20,000, five-year loan at 8.50% p.a., you’d save $1,109 and have your loan repaid over a year sooner.
How to apply for a personal loan
Complete the comparison process with Savvy
You can compare a wide range of fixed rate loan options with Savvy to help you pick the best one for your needs before diving into your application.
Fill out your lender’s form and submit documents
You’ll be able to apply via your lender’s site after clicking through from Savvy and supply any documents you might need alongside your application.
Receive approval and have your funds transferred
You’ll be notified of approval if your lender is happy with the application, with a loan contract to be signed and returned before your funds are transferred.
Helpful personal loan guides
Still looking for the right personal loan?
Personal loans come in all shapes and sizes, so read more about the ways you can use them, as well as how they might work for you.
