Does the cash rate affect personal loans interest rates?

21 October 2015

We all know the interest rates on home loans change when the Reserve Bank of Australia makes a decision to change or keep the official cash rate. But what about those of us with personal loans – does the cash rate mean anything for us?

The short answer is not really.

Personal loan interest rates appear to change (or not) of their own accord. Even when the cash rate has a small effect, it doesn’t make a hugely noticeable difference like it does for home loans.

What is the cash rate?

The official cash rate or OCR is the interest rate that the Reserve Bank of Australia (RBA) charges on overnight loans to commercial banks. The RBA sets this rate themselves at their monthly meeting on the first Tuesday of the month (except January).

Changes in the cash rate affect anyone with a financial product that has an interest rate attached – savings accounts, term deposits, mortgages, and (in theory) personal loans.

It also affects banks and other lenders, as it changes their funding and how much it costs them to provide loans.

In a larger way, the official cash rate affects Australia’s rate of inflation and our economic growth. When the cash rate is high, it slows the economy down; when the rate is low, as it is currently, it allows the economy to grow.

The RBA’s objective is always to create a stable currency for the sake of growing our economy, keeping our inflation and unemployment low and stable, and keeping consumer confidence high. If the economy grows too fast, we face high inflation, but if our economy doesn’t grow fast enough, we face unemployment and lower incomes.

You can find the official cash rate on the RBA website. At the time of writing, the cash rate is at a low point of 1.75%, with inflation running at a 17 year low of just 1%.

The cash rate and personal loans

How does the cash rate affect personal loans?

We have seen a slight decrease in the interest rates for personal loans since November 2014. But while this may be partially due to the cuts to the cash rate since then (in February and May), the market may also have been influenced by other factors.

The table below compares the interest rates at the time of writing (October 2015) with the rates from last year (November 2014) according to our comprehensive CANSTAR database.

Type of Loan Year Average Minimum Maximum
Secured 2015 9.90% 4.90% 14.65%
2014 9.97% 5.25% 23.49%
Unsecured 2015 12.36% 5.99% 18.70%
2014 13.40% 7.99% 23.49%
Source: CANSTAR database, 2014 and 2015. Based on $10,000 loan over 5 years

What you can do to get a great interest rate

When you’re applying for a personal loan, you are in a good position to negotiate a low interest rate if:

  • You choose to secure your loan against your own property instead of applying for an unsecured loan.
  • Your credit rating and credit history shows a low risk of defaulting on your loan.

No matter what rate you’re currently getting, it pays to shop around. You can compare the rates currently on offer for personal loans on our website.


Use our Personal Loan Calculator or Loan Comparison Calculator to work out how your repayments would be different if you switched personal loans.

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