Written by A fixed rate on a personal loan means, as you might expect, the rate is locked in from the beginning of your loan term and remains the same throughout your repayments.
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.
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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 means that if rates go down, you stand to save, but if they go up, you’ll pay more.
Budgeting
One of the primary benefits of a fixed rate is its accuracy when it comes to budgeting, as mentioned, so the opposite can be true for variable rates. If rates are particularly unsettled when you take out your loan, you could find your repayments going up or down every month.
Repayment flexibility
While there’s a chance you may be charged for additional or early repayments on a fixed loan, you won’t be with a variable rate. These 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 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: 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.
- How much you borrow: larger loan sums will cost more, as interest is calculated based on a percentage of your loan balance.
- How long you take to repay: the shorter your term, 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 interest.
Fixed interest loan costs are easy to calculate, as you don’t need to worry about rates changing during the term. 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. | 12.00% p.a. |
|---|---|---|---|---|
|
$10,000 |
$2,023 |
$2,310 |
$2,749 |
$3,347 |
|
$20,000 |
$4,046 |
$4,620 |
$5,497 |
$6,694 |
|
$30,000 |
$6,069 |
$6,930 |
$8,245 |
$10,041 |
|
$50,000 |
$10,114 |
$11,550 |
$13,742 |
$16,734 |
Calculations based on a loan repaid monthly over five years.
How should I compare fixed rate personal loans?
There’s a variety of factors that should be considered when comparing the best fixed rate personal loan options for your needs, including:
- Interest rate: this is the big one to think about when comparing loan deals. 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 (as you can see in the above table).
- Loan amount: of course, you’ll need to ensure that you can actually borrow the amount you’re looking for. For instance, if you’re looking for a $60,000 personal loan, there’s no use entertaining offers from lenders who cap their loans at $50,000.
- Loan terms: similarly, you should always stick to lenders who can accommodate your preferred repayment term. 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 charges compared to other types of finance, it’s still important to consider establishment and ongoing fees. You can get an idea of how much your loan’s fees will cost by checking its comparison rate.
- Repayment flexibility: many lenders will allow you to make additional repayments and pay off your debt ahead of schedule free of charge, which can save you plenty of money. However, this won’t always be the case, which is why it’s important to compare.
- Eligibility: one of the most important things to be sure of before submitting your application is whether you’re eligible for the deal. Although different lenders have different requirements, we’ve laid out the general criteria a bit further down.
Fortunately, when it comes to comparing loans, it’s never been easier than doing it with Savvy. We’ll help you along every step of the journey, from comparison to application to settlement, to maximise your chances of approval for the right loan deal.
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
What are the pros and cons of fixed rate personal loans?
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.
Speak to a professional
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.
Personal loan repayment calculator
It’s important to have an idea of what different loans might cost you overall before you apply. Fortunately, Savvy’s personal loan repayment calculator is simple to use and tells you everything you need to know about how much different offers might add up to overall based on a variety of different factors.
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Personal loan eligibility and documentation
Common fixed rate personal loan questions answered
Yes – you can generally refinance your fixed rate loan to another one with the same lender or a new provider or look into a debt consolidation loan. However, because some fixed rate loans come with early repayment fees, you should determine whether these outweigh the benefit of refinancing, which may be done to access a better rate, shorten your term or for a range of other reasons.
Yes – switching from a fixed to a variable rate on your loan will require you to refinance to a new deal, though. Because of this, it’s extra important to consider whether moving from one to the other is beneficial for you and doesn’t end up costing you more in fees or interest.
While the amount you can borrow on a personal loan can vary from as little as $2,001 to as much as $75,000, it’ll ultimately depend on a range of factors. These include:
- Your income and employment/pay stability
- Your expenses and other liabilities
- Whether your loan is secured or unsecured
- Your lender’s minimum and maximum loan amount
- Your lender’s minimum and maximum loan term
Lenders charge late payment fees if you don’t submit your instalment by a certain date. This could range from $15 to $35 or more depending on your lender. They may also compound the later you are, so it’s crucial to make sure you’re paying everything on time. If you’re having trouble keeping up with your repayments, contact your lender ASAP and let them know, as they may be able to help you avoid defaulting on your loan through their hardship provisions.
When you apply for a personal loan with Savvy, you can have your application formally approved as soon as the same day you apply. Once you submit your initial application and compare loans with us, we’ll get to work preparing your formal application to send to your lender. This could all be confirmed as soon as the same day or 24 business hours.
Secured loans come with an asset attached as collateral, such as a car, while unsecured loans do not. Collateral essentially adds a layer of security to the loan (hence the name), as it means your lender is able to repossess the asset to recoup any lost funds if you default on the loan.
This is a last resort, however, and secured loans generally come with lower rates and fees and potentially higher borrowing ranges. They’re generally slower to process than unsecured loans, though, and your asset will need to meet your lender’s criteria.
