Fixed Rate Personal Loans

Considering a fixed rate personal loan? Find out what they are, how they work, and when you should choose one.

Fixed Rate Personal Loans

Whether you’re worried about interest rates increasing, or just want certainty about your repayments, a fixed rate personal loan could be the right choice for you.

There are a lot of uncertainties when taking out a loan. But when you choose a fixed rate personal loan, there’s a few things you can count on. Here we explain what a fixed rate personal loan is and when you might need one.

What is a fixed rate personal loan

As the name suggests, a fixed rate personal loan has a set interest rate. This means that the interest rate does not change. Even if the lender’s interest rates move (increase or decrease), the loan’s rate won’t change.

It also means that your payments will stay the same throughout the life of the loan.

Why would I choose a fixed rate personal loan?

A fixed rate personal loan is a great choice if you want to know exactly what your repayments will be. As payments are set, there are no surprises, and it is much easier to budget.

A fixed rate personal loan also protects you from market movements. It could even save you money if rates go up. As such, if it looks like interest rates might increase, a fixed rate is probably the best choice.

When would a fixed rate personal loan not be suitable?

The main drawback of most fixed rate personal loans is that you cannot make extra repayments. At least not without incurring a fee. So, if you want to pay off your loan quicker, fixing your rate may not be right for you.

That being said, some fixed rate loans do provide payment flexibility. There are even some that allow you to redraw once you’ve made extra repayments. You just need to check the fine print to make sure the loan you choose has the features you want.

A fixed rate personal loan could also end up costing you more if interest rates fall. As such, it’s worth checking expected market movements over the life of your loan before locking in your rate.

Are there different types of fixed rate personal loans?

There are two main types of fixed rate personal loan – secured and unsecured.

A secured personal loan requires you to put up an asset (e.g. your car) as ‘insurance’. Your lender can then repossess that asset and sell it if you fail to make your repayments. Secured loans are usually easier to get because there is less risk for the lender.

An unsecured loan does not provide the lender with the same level of security. As a result, they can be harder to get and usually require a good credit history. They are generally more expensive too, with higher fees and interest rates.

Each lender will also have their own requirements, eligibility criteria, and fee structures. As such, you should always check the terms and conditions and make sure you understand what you’re signing up for.

What do I need to be eligible for a fixed rate personal loan?

Exact eligibility requirements will vary from lender to lender. However, generally speaking, you will need to be:

  • at least 18 years old
  • an Australian citizen or permanent resident
  • employed or receiving some form of income


You will also need to pass the lender’s credit worthiness checks. Generally this means you will need to have:

  • proof of your Australian residential address
  • a good credit score (usually above 500)
  • bank statements that show you have good financial habits (e.g. no overdraws, regularly putting money into savings, etc.)
  • evidence of your employment and regular income
  • evidence that you will be able to afford the repayments

The Pros and Cons of a fixed rate personal loan

As with all loan types, fixed rate personal loans have their good points and their bad points

PROS

Your interest rate will stay the same, usually for the life of the loan

Your repayments will stay the same, making it easier to budget

If interest rates go up during the life of your loan, you will save money

Some lenders offer payment flexibility and even a redraw function

CONS

Generally, you cannot make extra repayments without incurring a fee

Most lenders will charge a break fee If you want to refinance or pay your loan off early

If interest rates go down during the life of your loan, you will miss out on the saving

Frequently Asked Questions - Fixed Rate Personal Loans

Still have questions? Here’s a few other things most people want to know about fixed rate personal loans.

Do I need a secured or unsecured fixed rate personal loan?

The loan type that’s right for you will depend on what you’re using it for and your credit history. For example, if you’re buying a car, a secured loan may be best. However, if you’re renovating or planning a holiday and have good credit, an unsecured personal loan is probably best.

What is a break fee?

If you refinance your loan, or repay it early, you may be charged a break fee. This is to cover some of the lender’s lost income due to you ending your contract early. Usually, it is a percentage of the lost amount, although some lenders have a set break fee amount.

How do I compare and choose a fixed rate personal loan?

As with any loan, the right one is the one that best suits your situation. As such, you should carefully consider what you need the loan for and what additional features you require. You should also work out how much you need and how much you can afford to repay each month.

Once you know what you need, look through suitable options and choose the best deal. Pay particular attention to the comparison rate as this better represents the true cost of the loan.

How long can I take to repay my fixed rate personal loan?

Most lenders offer fixed rate personal loan terms of between 1 and 5 years. However, there are some that offer up to 7 years.

It’s important you choose your loan term carefully. Make it too short and you may not be able to meet your repayments. Make it too long and you will end up paying more in interest.

I need more money – can I take out another personal loan?

Generally speaking, it’s best not to have multiple loans at the one time. As an alternative – and depending on your lender – you may be able to redraw from your current loan. However, you must be ahead on your repayments (i.e. made extra payments) for this to be an option.

You may also be able to apply for a ‘loan top up’. This is effectively an extension of your loan and, if approved, will increase the amount you owe. However, you need to be aware that this will be another credit application and could affect your credit history.

What is a line of credit fixed rate personal loan?

A line of credit fixed rate personal loan goes through the exact same approval process. Once approved for a certain amount you can then draw down funds as required. 

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