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If you have been in search of a personal loan that has the right fit for you, you might have come across the words ‘fixed term’ or ‘fixed variable’ loan which is the same thing, but you want to understand how this will affect you. With most things, there are pro’s and con’s and we have broken it down into something that will help you make an informed decision.
What is it?
A fixed personal loan is basically loan charges that have a fixed interest rate, which means that your repayments will not change for the period of the loan. This is usually a term that works for someone who wants stability in terms of knowing how much you will be expected to pay each month. If you are a budget strict person, it will work perfectly for you because you can factor this into your budget knowing that it will never change.
The advantages of having a fixed personal loan
The obvious drawcard is that the payments towards your loan will remain the same, helping you know just how much you need to put aside to pay it off. This also means that when the market interest rate rises and falls your loan will not be affected.
Disadvantage of having a fixed personal loan
When choosing a fixed rate personal loan, you will find that the disadvantage to this is that the fixed interest rates may be higher than the variable rates in the long-term. Another disadvantage could be the fact that you could be paying more than a variable rate loan.
There is also a limit in terms of how much you can pay as early repayment. It’s advisable that you check whether there will be additional fees you will have to pay when making early repayments. Since it is a fixed rate, you won’t benefit from any decreases in interest rates.
The option of going secured or unsecured
This will be determined by your particular needs and circumstances as to whether you would want to go with a secured fixed rate or an unsecured fixed rate. If you need a second opinion, you can always speak to a financial advisor who will help you make an informed decision about your situation.
Things to keep in the back of your mind
It’s always important that you compare and research whether a fixed rate loan or any loan for that matter suits the situation that you are in. What worked for John Doe might not work for you. Also consider:
- Early exiting of the loan – Exit fees on fixed rate loans can be high since they leave your lender at a disadvantage. The lender will expect you to repay them through ‘break costs’ which consider the time and amount left on the loan. You can ask your lender to show you the ‘break costs’ to see how much you will be paying.
- Fees and charges – Always look at the terms and conditions in terms of fees and charges before signing up for a loan. Before you sign up for a loan it would be best to compare and see what other offers are out there.
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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.
The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.
Approval for personal loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.
The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.
