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

Overview

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.

Key Points

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.
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What's the best personal loan in Australia?

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:

  • Loans.com.au
  • Credit24
  • Harmoney
  • RACV
  • Now Finance
  • Plenti
  • Jacaranda Finance
  • Fairgo
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What's the best interest rate for a personal loan?

Interest rates can vary greatly depending on market conditions.

That's why it's best to shop around and compare your options to ensure you get the best conditions for your needs.

When you're comparing loans, make sure you check:

  • If it's fixed or variable.
  • How long you have to repay the loan.
  • If you can afford the monthly repayments.
  • What penalties come with the loan, such as missed payments or early exit fees.

Compare Club can help you find competitive rates with just a few clicks.

Is a secured or unsecured loan the best option?

As the name suggests, secured loans require a sort of 'security', which reduces the financial risk to the lender.

This could be real estate or other assets of value to the lender.

Car loans, for example, are often secured against your new vehicle.

For this reason, secured loans tend to have more favourable conditions, like lower interest rates.

However, the application process can take a little longer as it tends to involve more paperwork.

There is a risk that if you fail to meet your loan repayments, the lender has the right to repossess the asset you put up as security.

Applying for an unsecured loan is usually much faster as the lender needs less background information.

There's also no need for a secured asset.

It's also quicker.

You can receive your application outcome and the loan amount -- if approved -- in a matter of hours.

However, lenders take a greater financial risk when approving unsecured loans, so interest rates on repayments and any fees involved may be higher.

How can I make sure my credit score won’t be impacted?

As long as you stick to your repayment plan, your credit score won’t be affected.

But if you regularly miss repayments and don’t meet your loan conditions, it can affect your score negatively and make it harder to get approved for loans in the future.

Comparing personal loans with Compare Club won’t affect your credit score either.

We send what’s known as a soft credit check.

This appears on your credit history but doesn’t affect your credit score.

It’s necessary so we can filter out any lenders who may decline your application.

When you apply for a loan, this will result in a “hard” credit check.

This is where the lender checks your credit report and will affect your credit score - this can be both positive and negative.

What’s the best loan for buying a car?

The great thing about a personal loan is that you can use the money however you need it, depending on what kind of loan you decide on.

That said, there are specialised lenders for car loans, who may therefore be able to offer you a more appropriate deal.

Where can I apply for the best loan?

With the help of Compare Club, you can compare and apply for a loan in a matter of clicks.

We don’t compare all lenders, but we like to think the rates from our panel will be competitive.

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Taking out a personal loan is, as the name suggests, a very personal decision, so it's best not to cut any corners.

Do your research, compare your options and find the lender that's best for your needs.

This guide is opinion only and should not be taken as financial advice. Check with a financial professional before making any decisions.