Variable Rate Personal Loans
Take advantage of potential drops in market rates across your loan by comparing variable interest loans with Savvy.
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Wondering whether a variable interest rate is right for your personal loan? It’s important to understand how they work and how to compare your personal loan options before you apply, which you can do right here with Savvy. Consider a variety of deals, variable rate or otherwise, with us today to help you secure the best product available for your needs.
What are variable rate personal loans and how do they work?
Variable rate personal loans are a type of personal finance where your interest rate isn’t locked in at the beginning of your term, meaning it can change during your repayment period. Interest rates can be adjusted by your lender in line with the Reserve Bank of Australia (RBA) or independently.
In terms of the loan product itself, though, this type of finance is the same as any other personal loan. Loan amounts can reach as much as $75,000 or be taken out for as little as $2,001, with terms ranging from one to seven years (though some lenders will offer higher minimum or lower maximum loan amounts and terms).
What are the differences between variable and fixed rates?
There are several key differences between variable and fixed interest rates when it comes to personal loans. These include:
- Rate stability: fixed rates are set at the beginning of your term and remain the same until the end of your repayment period. This is in contrast to variable rates, which remain open to change.
- Repayment flexibility: fixed rate loans are more likely to come with fees related to early repayments, though some lenders may offer these loans with free settlements ahead of schedule.
- Potentially higher (depending on rate climate): in circumstances where rates are expected to rise, fixed rates may be higher than variable. However, when rates are predicted to fall, they may be set at lower ranges by lenders.
What are the pros and cons of variable rate personal loans?
There are many benefits of variable interest rates on personal loans, but there are also drawbacks to consider. The main pros and cons are as follows:
Pros:
- Potential to save: because variable rates remain open to market movement, you can benefit from lower interest if your lender drops their rates during your term.
- Repayment flexibility: most lenders will give you the freedom to repay your loan ahead of schedule without incurring potentially costly fees for doing so. This can save you plenty on interest in the process.
- Rates may be lower than fixed: whether a lender sets their fixed or variable rates higher will provide some indication of their expectation for interest movement over the coming months and years. This means you may secure a variable finance agreement at a lower rate than fixed finance if they’re expected to rise.
Cons:
- Not as effective for budgeting: fixed rates bring stability and certainty to your repayments. Variable rates aren’t as suitable for budgeting, as they don’t offer the same certainty.
- Vulnerable to rate rises: the flip side of saving on interest if rates fall is that you remain open to paying more if they move in the opposite direction.
- Fewer options available: the final factor is that, simply, there aren’t as many options available today in terms of variable rate personal finance compared to fixed. This may mean the quality of comparison isn’t as great given that you have fewer options to choose from.
How can I compare different personal loans?
There’s a range of different factors which should be considered when comparing personal loans, whether variable or fixed rate. These include:
How high your rate is
Perhaps the most important part of your loan to get right is your interest rate, as lower interest can help you save hundreds (if not more) over your repayment term. For example, applying for a loan of $50,000 at a rate of 8.00% p.a. over five years would cost you $10,829, but opting for a 7.00% p.a. loan instead would save you over $1,400.
Secured or unsecured
Some lenders will offer you the option of either unsecured or secured loans. Unsecured are more common, enabling you to apply without worrying about using a valuable asset as collateral. However, if you want to increase your borrowing power and lower your rate, using your car or another asset to secure your loan could be the way to go. Secured finance could extend your borrowing to as much as $100,000 (depending on your lender and the value of your asset).
Your borrowing range
Not all lenders are willing to approve loans for the same amount. Depending on who you apply with, you might be required to borrow a minimum of $5,000 or a maximum of $50,000. However, there are lenders in the market willing to approve you from as little as $2,000 up to a maximum of $75,000. Make sure you double-check your lender’s site to be certain that they can approve the amount you’re looking for.
Your loan term
In the same way as potential loan amounts, you should also ensure you can take as much or as little time as you need to repay your loan. While the general range is from one to seven years, different financiers will have different restrictions when it comes to how long their loans are. For instance, some cap their terms at five years or require you to repay your loan over a minimum of two to three years.
What the eligibility criteria are
Of course, you should know whether you’ll be able to qualify for your lender’s loan offers before you apply. These can differ slightly from lender to lender, but the broad strokes will remain the same regardless of who you apply to. You’ll have to meet the following general criteria:
- You must be an Australian citizen or permanent resident (or an accepted visa holder)
- You must be at least 18 years of age
- You must be employed and earning a stable income of at least $20,000 annually (multiple sources are accepted and minimum income requirements may vary)
- You must have a positive credit history without any prior defaults or bankruptcy (though options exist for those with bad credit)
Fortunately, you can compare personal loans right here with Savvy, where you can find easily accessible comparison information for each loan which matters most to you. Get a free, no-obligation quote today!
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How to minimise your personal loan’s variable interest
Boost your credit score
First and foremost, the most effective method of decreasing your interest rate is by holding a strong credit score. This establishes off the bat that you’re a borrower who has been successful when repaying debt in the past, which can make your lender more confident in you as a borrower. Lenders base their loan decisions (and especially their rates) on the level of risk present in the borrower, so you can maximise your chances of approval for a lower rate by working on your score.
Have a similar loan paid off previously
Having a strong credit score is only half the battle, however. Another way to help lower your personal loan interest rate in Australia is to show your lender that you’ve successfully repaid a similar loan in the past, whether that be a personal or car loan. Repaying a larger loan debt requires discipline, which brings lenders peace of mind that you’ll be able to do so again.
Choose a shorter term
A simple rule when it comes to loans is that the longer your term, the longer the time spent paying interest and fees. Where possible, you should always look to repay your loan as quickly as you can manage. Shorter terms come with higher monthly repayments, but they’ll save you in the long run. For example, repaying a $20,000 personal loan at 8.50% p.a. over four years instead of five will cost you around $83 extra per month, but you'll save over $950 (if rates remain the same).
Make additional repayments
Paying above and beyond the minimum on a variable rate personal loan is a common way to reduce your overall interest outlay. Most financiers in this space will enable you to do so free of charge, which can potentially save you hundreds in the long run. The beauty of free extra payments with a variable interest rate is that you can pay more when rates are lower, which will help you capitalise even further on downward market trends.
Compare your options
Finally, the simplest way to reduce your rate is by finding and comparing as many options as you can before you apply. By doing so, you’ll give yourself the best understanding of the lowest rates you can potentially receive on the market. Savvy helps you compare personal loans from our range of partnered lenders by giving you all the key information you need to make an informed call on the right loan for you. You can start the comparison process today and submit your application in no time.
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