Compare low interest personal loans

What is a low interest personal loan?

A low interest personal loan is one that allows you to borrow money at a lower rate than average. Banks and lenders generally reserve their lowest personal loan rates for borrowers with the highest credit scores, meaning the more trustworthy you look as a borrower, the lower the interest rate you might be able to get. 

A low rate personal loan can be appealing–after all, why wouldn’t you want the lowest rate you can get, so you can be charged less interest while repaying your loan?

But when it comes to personal loans,  the interest rate is only part of the picture. Low rate loans can come with high fees, and when you factor these in, the true cost may be higher than you think.  

How can I get a low interest personal loan?

There are a few  ways you may be able to get a lower interest rate on a personal loan:

• Shop around: Comparing loans from a range of lenders can help you get a sense of what’s on the market and find a loan with a low rate and low fees.
• Improve your credit score: Borrowers with ‘excellent credit’ are usually offered the lowest personal loan rates. You can check your credit score with Canstar and, if it’s low, take steps to improve it. These include lowering your credit card limit, limiting how many applications you make for credit products, and making sure to pay bills on time.
• Look at a secured personal loan: While the table above displays unsecured personal loans, a secured personal loan may offer a lower interest rate. That’s because secured loans use an asset as security–in the case of a car loan, the security is normally the car itself. If you don’t make your repayments, the lender can repossess the asset and sell it to recover the money you borrowed. Because the lender has this added level of protection, secured personal loans typically have lower interest rates than unsecured ones.

How can I compare low interest personal loans?

You can compare a wide range of personal loans from our Online Partners by using the comparison tool at the top of this page. Alternatively, you can answer some quick questions and let us help you find some options that you might be eligible for. 

When comparing personal loans, key questions to ask are:

• Is the interest rate fixed or variable? With a fixed rate, the interest rate and your repayments will stay the same for the life of the loan. With a variable rate, your interest rate can go up or down and your repayments can vary as a result.
• What is the comparison rate? The comparison rate on a personal loan takes into account both the interest rate and most upfront and ongoing fees and charges. It’s designed to give you a better idea of the total cost of the loan each year.
• What are the fees? A personal loan can come with an establishment fee, monthly service fees, missed payment fees, extra repayment fees, and early repayment fees and these can add up quickly if you’re not paying attention.
• What is the loan duration? Repayments on a loan with a longer term will be lower. What’s the tradeoff? You’ll usually pay more interest in total.
• What features are available? Some lenders offer loan features that may suit your needs and help you manage your finances. These can include the ability to make unlimited extra repayments or a redraw facility letting you access your extra repayments if you need to.

How much can I borrow with a low interest personal loan?

The amount you can borrow will depend on the lender, the type of loan you take out (for example, whether it is secured or unsecured), and what you can afford to repay. When working out how much you can borrow, providers will typically consider:

• Your income and expenses.
• Your personal situation (like if you have dependents). 
• Any other financial commitments you have (such as other loans or credit cards).

Should you take out a low interest personal loan?

When deciding whether to take out a personal loan of any sort, it’s important to consider your needs and wants. Do you need money for a new car, or are you hoping to borrow for a wedding or holiday? Make sure repayments on what you borrow fit comfortably within your budget.

Even if a lender is prepared to lend you a certain amount, it’s important you carefully consider if borrowing that sum is the best option for you. You may be able to afford the repayments now, but what would happen if you lost your job or your circumstances changed? 

It’s important to note that interest rates on personal loans are often higher than on other forms of finance, such as home loans. However, personal loans often have lower interest rates than credit cards. It could be a wise idea to consider other forms of finance and weigh up your options carefully.

For example, if you want to borrow money to renovate your home, you may get a more favourable rate by refinancing your home loan and drawing on your equity than you would by taking out a personal loan.

How do I apply for a low interest personal loan?

You can apply for a personal loan online with most lenders or in person with some banks and credit unions. When applying for a personal loan, you’ll typically be asked to supply documentation and evidence showing that:

• You are over 18 years of age and an Australian citizen or permanent resident
• You have sufficient income to cover the repayments
• You have a reliable record as a borrower based on your credit history
• You’re in a good financial position based on the other assets you own and any other debts you have

Before applying for a personal loan, it’s important to read the loan documentation carefully, including the Target Market Determination (TMD). Understanding what you are signing up for will help you to decide if the product is a good fit for you.

Can you refinance a personal loan?

Yes, it’s possible to refinance a personal loan as you can a home loan. Refinancing means taking out a new loan to pay off an existing one, then simply repaying the new loan. You might do this if you find a loan with a more favourable interest rate or more flexible terms, you’re consolidating multiple debts into a single loan, or your needs have changed since you originally took out the loan.

Does applying for a low interest personal loan affect your credit score?

Yes, applying for any sort of personal loan can have an impact on your credit score. If you submit multiple applications for loans and are rejected each time, this can drive your credit score down and signal to lenders that you may be an untrustworthy borrower. A low credit score could also mean that, even if you are approved for a loan, you might be offered one with a high interest rate. 

To avoid damaging your credit score, it’s wise to do your research about personal loans on offer and limit the number of applications you make.

Are there alternatives to low rate personal loans?

Alternatives to taking out a personal loan to cover a large expense can include:

• Using your savings or waiting until you have saved up enough money to cover the cost.
• Accessing cash by withdrawing any extra repayments you have made on your home loan (if it has a redraw facility).
• Using a credit card, if you’re confident you can repay the balance in full each billing cycle–otherwise, you could end up paying high interest.

Applying for a no-interest loan–these are available to eligible low income borrowers to cover the cost of essential goods and services through the No Interest Loan Scheme (NILS).