How to choose the best personal loan rate for your finances
Whether you’re looking to update your kitchen appliances, your car just bit the dust, or you need some help realising your dream wedding day, finding the right loan may require a little digging. Here’s what to look for.
by Gary Andrews
Last update 1 Aug 2021
There are moments in life when a little financial boost could make all the difference.
And while it may be tempting to just add everything to your credit card tab, there's a good chance that you'll be hit with astronomical card fees shortly after.
So if you're looking to bridge a temporary financial gap, a personal loan may be a better option.
By shopping around, you may find better lending conditions than your average credit card provider, saving you big bucks in the long run.
But, as with any financial decision, it's important to make sure you understand what you're signing up for.
Here's what to look out for when comparing loans.
A personal loan may be more appropriate than a credit card for certain situations.
You can choose between a secured or unsecured loan, as well as fixed or variable interest rates.
Shopping around can help you find the most appropriate loan conditions that match your needs.
Personal loans can be a great way to bridge a temporary budget gap, whether you want to make a big purchase or are looking to consolidate your debts.
But like most financial products, personal loans are not a one-size-fits-all kind of thing.
Finding the right one for you depends on a few different factors, which may include:
What you want to spend the money on. For example, it could be a car, a holiday, renovations, or to consolidate debt.
How much you plan on borrowing - different lenders may offer you different ranges of loan amounts.
Your preferred repayments structure, including if you want the option to pay off your loan early.
Your preferred loan structure - this can include selecting secured or unsecured loans and fixed or variable interest rates.
Like most other loans, personal loans usually come with a fixed interest rate or variable interest rate option.
With a fixed interest rate, you lock in one interest rate for your entire repayment period.
This means your monthly repayments should remain the same until the loan has been repaid in full.
This can make it easier to budget and it could protect you from unexpected changes to the interest rate.
That said, you could miss out on savings if your lender opts to decrease their rates.
A variable interest rate, on the other hand, can change depending on market fluctuations.
Your monthly repayments may vary or change as the interest rates can rise as well as drop.
It basically can go one of two ways -- you may end up saving some money when the rates go down, or you risk paying more when they jump up.
As opposed to fixed interest rate loans, loans with variable interest rates also don't usually charge an 'early exit fee' if you choose to pay back the loan sooner.
Are banks best for taking out a personal loan?
Most banks offer personal loan options on a fixed-term basis.
But choosing the right lender comes down to your own needs, such as the amount you’re looking to borrow and how favourable their loan conditions are for you.
Banks also offer other options to stretch your budget in the short term, such as:
Lines of credit: approves you for a certain amount of money, which you can draw from flexibly whenever you need it without reapplying. You then make monthly repayments with interest -- but only on the amount you've used.
Overdrafts: this allows you to draw over the limit of your bank account. You pay a variable interest rate on what you've used, which may be higher than those that come with a regular personal loan.
A private lender may be able to offer you more flexible conditions that’s better tailored to your needs, so doing your research and considering all your options could save you money in the long run.
What are the best personal loan companies?
There's no such thing as a 'best company' - although it's worth checking out the reputation and customer reviews of potential lenders.
You'll need to select a loan, a rate and a repayment schedule that's right for your needs, so make sure you're clear about what you can afford to repay.
At Compare Club we compare personal loans from some of Australia's top lenders to help you make a well-informed choice, including: