Compare low-interest personal loans

As the name suggests, a low-interest personal loan is one that typically offers a lower-than-average interest rate.

As with most loans, personal loan lenders charge interest on top of the principal amount owing. Interest charges can greatly impact the overall cost of a personal loan. Borrowers may want to consider comparing a number of low-rate options to keep their repayment costs low.

It's worth noting that certain low-rate, no-frills personal loans might lack helpful features like a redraw facility or offset account. These additional perks are typically found in personal loans with higher interest rates, as the extra cost helps provide these benefits.

As you begin your search for a personal loan, it's vital to do more than just focus on the interest rate. It's helpful to take a broader view and consider a variety of distinct features. This approach can be helpful in finding a loan that aligns with your financial goals. Think about factors such as the loan amount you need, your financial objectives, and your preferred repayment plan for the borrowed funds. This way, you can select a loan that's tailored to your specific financial situation.

When it comes to getting a personal loan in Australia, you've got plenty of choices to suit your financial needs. Personal loans are handy for all sorts of situations, but before you dive in, take a moment to think about why you need the money. By understanding your specific needs, you can find the perfect loan that gives you the most bang for your buck. It's all about making sure you get the most value out of your loan from start to finish.

Personal loans can be used for all sorts of things, mate. Whether you're trying to sort out your debts, fund a fancy holiday, spruce up your home, pay for medical stuff, tie the knot in style, or buy a new set of wheels, there's a personal loan out there that's just right for you. No matter what you need the cash for, there's a loan option that fits the bill.

Some of the types of personal loans that are available in Australia include:

• Personal loans for buying a car
• Personal loans for debt consolidation
• Personal loans for holidays
• Personal loans for weddings
• Personal loans for home renovation and home improvement
• Personal loans for student fees
• Personal loans for hospital bills
• Personal loans for veterinary bills
• Personal loans for dental work
• Personal loans for cosmetic surgery
• Personal loans for rooftop solar

While these examples highlight some of the common personal loan options available in Australia, it's important to note that there are numerous other types of personal loans tailored to meet specific needs and circumstances.

Personal loan lenders often have strict eligibility criteria that you’ll need to meet to be approved for a personal loan. To be approved for the lender’s lowest interest rate on a personal loan, you may have to jump through a few hoops and fit certain standards.

While eligibility requirements may vary between personal loan lenders, generally speaking, the following may help improve your chances of being approved for a low-interest personal loan:

1. Possess an excellent credit rating

Having a good to excellent credit score is one of the major criteria set by personal loan lenders to be approved for financing. While having a good credit score may still see you approved for a loan, the stronger your credit history and credit score, the more likely you may be approved for a more competitive interest rate. 

Lenders reserve their most competitive personal loan interest rates for “ideal” borrowers, meaning those who carry the least amount of risk of default. This is also true of home loan lenders and other financial service providers. Having an excellent credit score is one way to boost your chances of nabbing a low-rate personal loan. If you’re unsure about your credit score, you can visit RateCity’s credit score hub to check it for free.

If you find your credit score is low, it could be challenging for you to qualify for a low rate personal loan. Applying for multiple loans to see if you could get lucky with at least one could cause your credit score to take further hits. Multiple loan applications could reflect poorly on your credit history, making it challenging to qualify for credit products.

If your credit score isn’t as high as you expected, you may want to wait and work on improving your credit score. This can increase your chances of securing a competitive interest rate in future and improve your overall financial health. However, if you need money urgently, you may not have the luxury to wait for your credit score to improve before applying. In such a situation, you could explore other ways to strengthen your loan application, such as applying for a joint personal loan or opting for a secured loan.

2. Consider taking out a secured personal loan

Not all personal loans are created equally, and the type of personal loan you choose may influence the interest rate you’re offered.

A secured personal loan is one that uses an asset, such as a vehicle or jewellery, as collateral to secure the loan. In the even you default on the loan the asset will be seized. This scenario reduces the risk to the lender that this could occur as you’re less likely to miss a repayment if your asset is on the line. This is why secured loans generally come with lower interest rates on average.

Comparatively, an unsecured personal loan will allow you access to the same amount of funds without securing an asset as collateral. There’s no risk that the lender could seize your asset if you defaulted on the loan, but it’s more likely the lender may offer you a higher interest rate on average.

3. Compare lenders

It's a common practice for individuals in search of personal financing to stick with the same bank they've been loyal to for years. The assumption is that loyalty guarantees approval, but that's not the reality. You'll still need to meet the lender's approval criteria, and you might be overlooking the possibility of a more competitive personal loan by not exploring other options.

Various personal loan providers offer different interest rates, and in general, smaller lenders, online lenders, or neobanks tend to provide more competitive rates on average compared to larger banks. This is because major banks often carry higher overhead costs, including maintaining physical branches, which competitor lenders can minimise. By reducing these overheads, competitor lenders may pass on the savings to you in the form of lower interest rates and reduced or even waived fees.

The rate you are offered will still depend on your personal financial situation and credit history. But it’s a good reminder to shop around and compare your options to ensure you’ve found the best personal loan for your goals and budget before signing on the dotted line.

4. Make extra repayments

You may be able to reduce your overall interest charges by making additional repayments. The ability to make extra repayments is a personal loan feature some lenders may offer you. By taking out a loan that allows for additional repayments you’ll have the opportunity to chip away at your loan principal faster, shortening the loan term. This may help to reduce the amount you pay in interest repayments over time, as the shorter your term, the less interest charged overall.

However, you may find the lender charges a higher rate than a more basic loan option for the perk of having said feature. In this case you may want to ensure you have budgeted to make additional repayments to make the most of this feature.

5. Consider applying for a personal loan with a guarantor

Lenders typically reserve their lowest rates for low-risk borrowers who are less likely to default on the loan. Having a guarantor on your personal loan lowers the level of risk to the lender, which may lead them to offer you a more competitive interest rate.

A guarantor is another person who agrees to assume the responsibility for the loan in case the borrower defaults on it. Most lenders allow parents to act as guarantors for their children, but some lenders may be a little more relaxed and accept other relatives (and sometimes, though rarely, even friends and colleagues) as guarantors.

Before you proceed with this option, make sure that you can afford the repayments. It’s crucial to remember that if you happen to default on the loan, the guarantor is likely to be held responsible for the outstanding amount. In the unfortunate event that the guarantor is unable to service the loan, it could lead to default, which may prompt the lender to take legal action.

6. Choose a shorter loan term

Choosing a loan term that's shorter than the usual duration can actually play to your advantage as a borrower. Even though your monthly payments might be a bit steeper, opting for a shorter loan term usually comes with the perk of lower interest rates. This is because the loan gets paid off sooner, so lenders often offer better rates as an incentive. It's like a faster track to freedom from debt.

7. Negotiate with different lenders

It may be worth having a chat and negotiating with lenders to see if you can snag a better interest rate. If you've got a solid credit history or you've been buddies with a bank for a while, you might have some room to maneuver for better terms. Don't be shy - asking and making your case for a lower rate can pay off.

While the interest rate set by a lender is one of the biggest factors to consider when choosing a personal loan, it is not the only consideration. There are a number of significant loan factors to compare when searching for your best option:

Interest rate type

Depending on the lender and the specifics of the loan, you may be able to choose between a fixed and a variable rate.

Fixed rate loans allow you to lock in a rate for the loan term. During this time the rate will not fluctuate, offering you more stability in your budgeting and repayments. Plus, you’ll be guarded from potential rate fluctuations, but you will miss out on any rate cuts that may occur.

Variable rate loans are subject to fluctuation as per market conditions and the lender’s decision. If interest rates were to rise, so too would your ongoing loan repayments. If rates were to fall, you would also see your repayments decrease too. Further, variable rate loans are more likely to come with features, such as extra repayments or a redraw facility.

Comparison rate

Comparing personal loan comparison rates may also help you to find the lowest-cost option. While the advertised rate indicates how much interest may be charged, the comparison rate also takes into consideration the interest rate plus many of the ongoing costs, such as monthly fees or service fees.

A comparison rate aims to create a more “realistic” cost for the loan, based on a 5-year, $30,000 personal loan. As your loan size and term may differ, this calculation may not reflect exactly what you’ll be charged for your persona loan. However, comparison rates may assist you in gauging whether your loan options have fewer or greater ongoing fees.

Loan term

The duration of your personal loan plays a vital role in determining the overall interest you will pay. Opting for a shorter loan term (1-3 years) results in higher ongoing payments (weekly, fortnightly, or monthly) but reduces the amount of interest accrued throughout the loan's lifespan. Conversely, selecting a longer loan term (4-7 years) lowers your regular ongoing repayments but increases the total interest paid over the loan's duration.

The best loan term for you and your circumstances depends on several factors, including the loan amount, the purpose for which you’re borrowing and your income. Selecting a shorter term could mean your recurring payments are bigger but a longer term would see you paying more in interest overall. You could use a repayment calculator to check the repayment amounts and interest costs across different loan terms to decide on one that fits into your budget.

Features

Different personal loan offers may offer extra features that could be important to you and how you pay off your loan. Some of these include:

• Extra repayments: As mentioned above, one way to pay off your personal loan sooner is to make extra repayments. However, not all lenders will allow you to make additional repayments, and some may charge a fee, while others may offer unlimited extra repayments.
• A redraw facility: A personal loan with a redraw facility will allow you to withdraw extra repayments you’ve made and return them to your bank account. This can be handy if you want to pay less interest on your personal loan, but still want access to your money. Keep in mind that not all personal loans come with redraw facilities, and those that do may charge redraw fees.
• Early exit: If your financial situation has improved since you took out a personal loan and you want to eliminate your debts, some lenders may allow you to repay your loan in full and close it before the end of the scheduled term. However, you may need to pay a penalty for exiting early.

Fees

As mentioned above, it’s not just the interest charges you’ll need to factor in if you’re trying to find the lowest cost personal loan option. There are a range of fees that a lender may charge you that will contribute to how much you pay for the personal loan, including:

• Upfront costs (e.g. establishment fees or application fees)
• Ongoing fees (e.g. annual fees and/or monthly fees, including service fees)
• Late payment fees
• Extra repayment fees
• Early repayment fees/exit fees
• Redraw fees

Debt consolidation personal loan

This type of personal loan may be able to help you manage other outstanding debts you have, by combining them into a single personal loan. With just one regular repayment, one interest rate and a single set of fees to manage, you can simplify your budget and potentially save money.

For example, imagine you had two maxed-out credit cards and an outstanding car loan. You’re paying interest plus fees on each of these credit products. By taking out a debt consolidation personal loan, you may be able to clear these outstanding debts all at once, leaving you with just one loan to manage. This may ultimately save you hundreds, if not thousands, in interest charges across multiple products.

You’ll be charged interest at just the one rate (often a lower rate than what’s charged on most credit cards) and potentially pay just one set of loan fees. This may cost you less per month than managing the three credit products separately and help make your budgeting much simpler.

However, it's important to understand that if you take out a personal loan with a lengthy loan term, you may end up paying more in interest on your outstanding debts than you would by paying them off, in full, separately.

Home improvement personal loan

The advantage of a home improvement personal loan is that it offers a fixed lump sum, allowing homeowners to plan their projects and budget accordingly. Unlike other financing options, such as credit cards or home equity loans, the personal loan provides a structured repayment plan with predictable monthly installments. This can make it easier to manage expenses and ensure timely repayment.

Additionally, a home improvement personal loan typically comes with competitive interest rates, which can result in cost savings compared to using high-interest credit cards or tapping into other sources of financing. Borrowers can enjoy the benefits of a dedicated loan product designed specifically for home improvements, providing the necessary financial resources to enhance living spaces.

Personal loans for installing solar panels

If rising energy prices are giving you sleepless nights, you may have considered the option of switching to solar to cut down on your expenses. Besides saving you money on energy bills, solar panels could also potentially make your house more valuable. Further, you may earn some good karma for reducing your household’s carbon footprint and contributing to a better environment.

Despite all the benefits it may offer, the high cost of installing a solar energy system is a potent hurdle, which may be overcome by using a personal loan to finance the purchase and installation of solar panels.

Many lenders offer special personal loan products, also called green loans, that may be used for funding solar energy projects. These loans often come with competitive interest rates or reduced fees that may act as an incentive for borrowers to switch to environmentally-friendly options.

While traditional personal loans will always come with an interest rate attached, there may be a way to apply for an interest-free personal loan if you’re struggling financially.

The No Interest Loan Scheme (NILS) offers financing to individuals and families “on low incomes with access to safe, fair and affordable credit”. It is offered by 170 local community organsations across 600 locations throughout Australia.

The NILS is a no interest small loan that may be used to borrow up to $3,000, with repayments to be made over a 12-18 month period. While there are no credit checks, NILS loans can only be used to pay for essential goods and services such as:

• Household items such as furniture, fridges, washing machines, stoves, dryers, freezers, and heaters
• Medical and dental services
• Educational essentials such as laptops, tablets and textbooks
• Car repairs and tyres

You may be eligible to apply through for the NILS if you:

• Earn less than $70,000 a year after tax ($100,000 for couples or those with dependants) or
• Have a Health Care Card/Pension Card or
• Have experienced family or domestic violence in the last 10 years AND
• Can prove you have the capacity to repay the loan.

There are a range of tools that may help you to compare personal loan options so you can find your best low-interest option, including:

Comparison tables

Comparison tables can be a great place to start if you’re looking for a low interest rate loan. Comparison tables help you to compare apples with apples, so you can view personal loan options side by side and compare then via interest rate. Simply enter the loan amount you want to borrow and the loan term and then filter down your loan options based on the advertised rate.

Real Time Ratings^TM

RateCity has ranked the top-rated personal loans on our Personal Loans Leaderboard using our comprehensive, game-changing Real Time Ratings™ system. This system gives loan products a score out of five, based on cost and flexibility. Unlike other ratings systems that rank their products once or twice a year, our Real Time Ratings™ system ranks products live as you use the site, helping you narrow down your shortlist of personal loan options.

Personal Loan Repayment Calculator

Another way to compare your low-interest personal loan options is against how they may suit your budget. Hop on to RateCity’s Personal Loan Calculator to get an estimate of your potential loan repayments to see what the ongoing repayments may look like. You can enter your preferred repayment schedule (weekly, fortnightly, or monthly) as well.