Low Interest Personal Loans

A low-interest personal loan offers flexible, affordable finance for a range of needs. Our guide helps you find the right option for you.

Low Interest Personal Loans

Low interest personal loans are designed to be an affordable finance option to suit a variety of needs. Low interest rates help to keep the cost down, so you have a flexible option to fund your next big purchase.

What can I use a low interest personal loan for?

Low interest personal loans can be used to pay for personal expenses like medical bills, holidaysweddings, renovations, school fees, or any other big purchase you’re looking to make. They can also be used to consolidate debt, which basically means refinancing debts and credit cards under the one low interest rate loan. Consolidating debt makes the overall management easier and takes advantage of a lower interest rate, which means cheaper repayments.

How to compare low interest personal loans?

When comparing products, your first thought might be to find the cheapest option available, and then go with that. When it comes to choosing a loan, price shouldn’t be the deciding factor for you. You first need to understand your needs and know the different types of loans available to you. There’s no point choosing the cheapest loan you can find if it isn’t going to serve the purpose you need it for.

Aspects you need to consider are:

  • loan features
  • repayment and loan term
  • fixed or variable interest rates
  • secured or unsecured
  • flexibility
  • total cost

Use our checklist below to get started with comparing loans.

How do I find the cheapest personal loan?

When looking for a low interest personal loan, you don’t necessarily want to be looking for the cheapest product; it’s important to find the product that suits your individual circumstances and comes with the relevant bells and whistles. For example, you might find a product with a low interest rate and minimal fees but doesn’t allow for early repayment. If you want the option to repay the loan early, you might be better off with a product that has slightly higher fees but no penalty for early repayment. This small difference in features could see the more expensive product ending up cheaper simply because you could have it paid off sooner than the loan with the low rate and fees.

When it comes to choosing a product, once you’ve decided on the features you need, it can be tricky to tell which one is the cheapest just by looking at the interest rates. This is because the true cost of a loan varies depending on fees & charges, interest rate, the repayment term and how often repayments are made. Each individual aspect of a loan is combined and used to summarise a loan product into one simple rate — known as the comparison rate. You can then easily compare the comparison rate across different products to understand which product is truly the cheapest when it comes down to all of the aspects that determine the cost. For example, when comparing two different rates of 7% and 7.5%, you can’t tell which overall product is going to be cheaper once fees & charges plus additional features are taken into account. The 7% product might have a monthly fee of $20 while the 7.5% product could have zero fees. Until you compare the comparison rates, you can’t tell which is cheaper just by looking at the interest rates.

Loan Amount Loan Term Monthly Fee Interest Rate Monthly Repayment Comparison Rate
Loan A
$10,000
5 years
$20
7%
$218.01
11.12%
Loan B
$10,000
5 years
$0
7.5%
$200.38
7.50%

As you can see from the table above, the loan with the cheaper interest rate is actually much more expensive than the higher interest rate loan. The comparison rate details the difference in cost.

Low interest personal loans explained

Get the best deal by comparing low interest personal loans

Our checklist helps you determine what factors are important for your low interest personal loan:

Secured or unsecured personal loan?

When searching for the right low interest personal loan, you’ll need to consider whether a secured or unsecured loan is the best option.

Secured personal loans are backed by an asset, used for collateral or security. This means that if you are unable to repay the debt for whatever reason, the lender takes the asset that was used as security — usually a car, house, boat, or another valuable asset — and sells it to recoup the money they lent out.

Unsecured personal loans are not secured by an asset, which simply means you don’t have to offer an asset as collateral. This may be a desirable aspect for you if you don’t have any significant assets to offer as security.

What features do you need?

You’ll sometimes pay more to access extra features but if you end up needing to use them, it could be very worthwhile, and could even save you money. Consider whether you need features such as a redraw facility, frequent flyer points or the ability to repay the debt earlier than the term.

Flexibility

It is essential to find a product that suits your needs regarding flexibility. Some products let you choose whether you make repayments weekly, fortnightly or monthly. The option to make extra repayments can be desirable.

How much does the loan cost?

In addition to the interest rate payable, it’s not uncommon to have to pay an establishment fee, ongoing monthly fee or annual fee. The fees and charges associated with a personal loan can add up quite quickly, so it’s essential to consider the comparison rate to get a realistic idea of the cost.

Loan Amount Loan Term Establishment Fee Monthly Fee Interest Rate Monthly Repayment Comparison Rate
Loan A
$10,000
5 years
$200
$0
7%
$198.01
7.70%
Loan B
$10,000
5 years
$0
$0
7.5%
$200.38
7.50%

Fixed or variable interest rate?

Fixed rates remain unchanged for a specified period during the repayment term whereas variable rates change with the market. Fixed rates provide certainty — because the rate remains fixed — so you’ll know exactly how much you need to pay every time you make a repayment.

This can fit well into a budget and make money management simpler. Variable rates can be advantageous if the rates drop because you’ll essentially be paying less back. This advantage comes with a risk though — if the interest rates rise, you could end up paying a much higher rate than if you chose fixed. Repayment terms are often much more flexible with variable than they are with fixed

How long should the repayment term be?

Personal loan terms usually vary between one and five years. Choosing a term of one year will mean the repayments will be a lot higher than if you chose a five-year term, simply because you’re repaying the money over a shorter horizon. The repayments will be higher, but a shorter term will end up saving you money because you’ll only be making interest payments for one year rather than five. In saying this, it’s crucial to choose a loan term that is going to be affordable for you. There’s no point choosing a shorter term to save on interest costs if you’re not going to be able to afford the repayments.

Should I choose a credit card or low rate personal loan?

Interest-free period

Credit cards have interest free periods where you can essentially borrow money without having to pay any interest on it if you pay it back within this specified period. Personal loans do not have an interest free period but that doesn’t mean credit cards are the cheaper option.

For example, consider you need a loan to pay for a $50,000 wedding. An interest free period is a great credit card feature, but the period is generally only 30-60 days interest free. Who is going to be able to afford to pay back $50,000 in less than 60 days? Probably not many of us! In this case, the personal loan with low interest rates over a longer term is going to be the best option.

Size of purchase

Personal loans are perfect for those large purchases such as paying for a big holiday or buying a car. Credit cards are better suited for smaller purchases such as everyday expenses like grocery shopping. The interest rates on a credit card are usually higher than a low rate personal loan, but you have the option of repaying during the interest-free period, which effectively makes the interest rate 0%. As the interest-free period is usually only 30-60 days, it’s important not to accumulate too much on the credit card if you’re wanting to pay it off in the interest-free period. This is where low interest personal loans are great for bigger amounts — you have a much longer timeframe to repay the debt.

Length of the term

If you’re looking for a short-term loan of less than one year, credit cards are the way to go as personal loans have a minimum term of one year. For a purchase that’s going to take you a few years to repay, personal loans will usually end up being the most cost-effective option over the long-term.

Best interest rates

Low rate personal loans usually have much lower interest rates than credit cards.

Debt consolidation

For small amounts of debt, a balance transfer can save you money by transferring the debt to a credit card with a lower interest rate and cheaper fees and charges. Larger debts are better off being consolidated with a low rate personal loan.

Pros and Cons of Low Interest Personal Loans

It's important to consider both the advantages and disadvantages when deciding if a low rate personal loan is right for you

PROS

Interest rates are low

Personal loan interest rates make borrowing money a very affordable option.

You decide what you spend the money on

Unlike a mortgage or a car loan, you get to decide what it is you spend the money on. This freedom allows you to spend the money on things such as medical expenses, holidays, debt consolidation, a wedding, and many other purchases you can think of.

You don’t need any existing assets to use as security

Choosing an unsecured loan means you can access finance without having to tie up your house, car or other assets in a loan. This is especially attractive to people who don’t have any assets to be used as security.

The repayment term is flexible

Most lenders will offer a repayment term between one and five years. You have the freedom to choose a term that suits your needs.

CONS

Fees can be costly

Watch out for establishment fees and ongoing monthly fees. The interest rate may be low, but if the fees are high, then the overall cost of the product could be increased.

Possible penalties for early repayment

Paying your debt off early is a great way to save money on interest payments, but not all products allow for you to do so. If you think you might like to pay off your debt sooner than the term, then shop around to find one that allows early repayment without penalty.

Predetermined repayments must be made on time

You are contractually obligated to make your repayments by their due date. Under special circumstances, it is sometimes possible to get an extension on your repayment due date.

Establish a good credit score

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Tips to get the lowest interest rate

While low rates are common with personal loans, these handy tips can help you achieve the lowest rate possible:

Tip 1 - Improve your credit score

It’s possible to secure a favourable interest rate if your credit history is squeaky clean. Be sure to pay any debts and bills on time to ensure your credit score is in tiptop condition.

Tip 2 - Consider using security

Secured loans are less risky than unsecured debt for the lender, and the interest rate is often reflective of this.

Tip 3 - Compare products

By familiarising yourself with the many options available, you can identify the best and most cost-effective loan to suit your needs.

Frequently asked questions about low rate personal loans

Find out more about aspects relating to low-interest personal loans.

What is a credit score?

A credit score — or sometimes known as a credit rating — is a number you are given that reflects your previous repayment history. This score helps lenders identify how risky you might be as a borrower.

Does my credit score affect the interest rate?

It can. Lenders may use credit scores to determine your level of risk. Low-risk borrowers may be offered a lower rate. In contrast, high-risk borrowers may be offered a higher rate to compensate for the additional risk taken on by the lender.

What does default mean?

To default on your loan means you fail to make the minimum repayments required. This impacts your credit score and can lead to legal consequences.

Can I get a low doc personal loan?

Low doc personal loans are available, but you may need to provide additional security or pay a higher interest rate.

Can I refinance a personal loan?

Yes. Refinancing a personal loan is when you replace your existing debt with a more appropriate product. A common reason for refinancing is to secure a lower interest rate.

Can I get a no credit check personal loan?

This type of credit is called a payday loan and are often used in emergency situations for quick cash. They have very high fees and rates and should be used with caution.

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