InfoChoice Guide to Low Interest Personal Loans

The interest rate is the most important cost to consider when taking out a loan. If you are looking for a low rate personal loan, either unsecured or secured, take two minutes to read our Guide to Low Interest Personal Loans:

First: What is the “comparison rate?”

When you compare personal loans, you will notice an interest rate and a comparison rate is often quoted by  lenders in their advertisements, websites and listings.

The comparison rate is displayed next to the interest rate and it’s expressed as a percentage, just like the interest rate.

It’s usually higher, however, because it includes any fees and charges involved with the set up and maintenance of the loan. It gives you an estimate of the total cost of your loan and helps you compare loans.

What is an unsecured personal loan?

An unsecured personal loan is one that has no security as a guarantee. This gives you more freedom to use the funds as you like, whether it’s for a car, a holiday or a new kitchen. You get the loan by giving the lender evidence of your income, debts and expenses.

What is a secured personal loan?

A secured personal loan, like a car loan or a boat loan, is ‘secured’ by collateral. A car loan is secured by the car, so if you fail to repay the loan, the lender can repossess the car. Because there is security for the lender, secured loans may feature a lower interest rate.

You can find out more about secured loans by reading InfoChoice’s Easy Guide to Car Loans.

You can use the InfoChoice Car Loan calculator to help you work out how much you might be able to afford to repay on a car loan.

Compare car loans at InfoChoice.

What’s good about unsecured loans?

The flexibility

You can go on holiday with a unsecured loan! A secured loan tends to have more restrictions on the use of the funds.  For example, a car loan is secured by the car itself, so you can’t spend the funds on a holiday.

Unsecured loans can be used for anything – within reason, of course – or for multiple purchases.

There’s lots of products to choose from

Unsecured loans are a fairly standard sort of product, so pretty much all banks and lenders will have plenty for you to look through. Each loan will have its own special features and some will appeal more to you than others, so take your time when you’re comparing.

The interest rates

Unsecured loans usually have slightly higher interest rates than secured loans, as this reflects the extra risk the lender is taking by not having a guarantee. Some alternative lenders offer unsecured loans at similar rates to secured loans, so don’t just look at the big Four.

How does an unsecured loan work?

An unsecured loan usually offers you between $1,000 and $100,000 without the need for an asset. Of course, the amount you’re approved for will depend on your credit rating, as will your interest rate. You’ll repay the principal amount, as well as the interest, over a period of (usually) one to seven years.

 You can use the InfoChoice Personal Loan Calculator to help you work out how much you can afford to repay on a personal loan.

The lender might ask what you’re planning to use the money for, to make sure you’re spending it on something worthwhile, like home improvements, a wedding, a holiday or to consolidate other debts. Purposes that aren’t seen as worthwhile include gambling and making financial investments.

How do you find the top rates on low rate personal loans?

It’s important to compare the loans on the market before applying for the one that suits you the most. Here’s what you need to consider.

The interest rate

Most unsecured personal loan rates are between 7.5 per cent p.a. and 18 per cent p.a. and the rate may be fixed or variable. Always remember the comparison rate.

The minimum and maximum loan amounts

Most loans range from $1,000 and $100,000, so it’s important to make sure the amount you need is within these limits.

Fees and charges

There may be upfront and maintenance fees for some loans, so find out what they are and always examine the comparison rate.

Any additional features

Some loans have useful extra features, like flexible payments and a redraw facility, as well as online account management or discounts on other products offered by the lender.

The downsides of unsecured loans

Higher penalties for missed payments

As these loans have no security, the lender may impose higher fees for late or missed payments. You may also face legal action if you default, rather than having the security asset repossessed.

Higher interest rates

This is to make up for the lack of collateral, although many variable rate unsecured loans let you make overpayments without charging you extra. This can shorten the life of the loan and reduce your overall interest costs.

Things to avoid with unsecured personal loans

Borrowing more than you actually need

Don’t be tempted to borrow more than you need just because you can, because you’ll have to pay it back, plus the interest. Use a loan calculator to make sure that the amount you’re asking for will be comfortable for you for the term of the loan.

Excessive fees

When you compare top personal loan rates in Australia, make sure you look at everything.

There’s the basic interest rate, the comparison rate, the fees and the penalties for late payments, just in case they’re too high for comfort.

The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements

InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.

The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us.  You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

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