How should I compare personal loans?
There are several key areas which you should look to when comparing personal loans. Paying attention to these factors will boost your chances of applying for the best loan for your needs. Make sure you compare the following areas:
These are perhaps the easiest aspect to compare when it comes to personal loans, as interest rates are always prominently displayed on lender sites and personal loan rate comparison tables. The reality is, though, that even a small difference in interest rates can save you a significant amount of money over a relatively short timeframe.
If you were looking for a $30,000 personal loan to be repaid monthly over five years, for instance, you would save around $15 per month and over $850 in total if you opted for a 7.5% p.a. interest rate over an 8.5% p.a. rate. It’s also important to note that each rate is personalised to the customer, so the rate you’re offered might be different to one that your friend or neighbour would be.
Fees also vary on personal loans depending on the lender you choose and the nature of the loan you take out. The most common fees you’ll face are ongoing monthly costs and an establishment fee.
While service fees are only likely to cost you a small amount each instalment, they can end up costing you a significant amount. $10 monthly fees on a five-year loan paid to term would end up costing you $600 on its own. Some of our lenders don’t offer any ongoing fees on their loans.
Similarly, establishment fees vary between lenders. Your fee may be charged as a set lump sum of up to $575, while other lenders may express this as a percentage of your loan amount. As a general rule, though, you won’t have to pay more than $600 and it can also be waived by your lender (as it is by some of our partners).
Additionally, early repayment fees aren’t usually charged, affording you the freedom to repay your loan as quickly as you wish. When these fees do apply, their cost will vary depending on the size of your loan and how long is left to run on your term. Late repayment fees can’t be avoided, however, as you’ll incur a fee of between $20 and $35.
While it’s important to compare rates and fees on their own, you should always refer to the comparison rate on your personal loan as an indication of its true cost. This is because it serves as a combined figure representing both the interest rate on your loan and its primary fees (namely establishment and service).
You can utilise the comparison rate when calculating your repayments in place of interest to determine what you’re actually likely to be paying each instalment. This rate doesn’t include all fees, however: more conditional fees such as early and late repayment charges, which are commonly avoided, aren’t factored into this calculation.
It’s important to approach the application process knowing what your ideal repayment period is, as this will also help inform your decision on which lender to go with. Not all lenders will be able to offer the same term lengths, as some will limit their minimum terms to three years and others will cap their offered periods at five years, as opposed to the full one- to seven-year range which some lenders can provide you.
Similarly, the amount you’ll be able to borrow will differ between financiers. While you can borrow between a minimum of $2,000 and maximum of $75,000, many lenders cap their unrestricted borrowing range to $50,000 or enforce a minimum loan size of $5,000. If you find yourself borrowing on either end of this scale, it’s especially important to give some thought to which financier is the best option for you to go with.
In addition to these, it’s crucial to understand the importance and usefulness of extra features on your personal loan. For one, free additional repayments can help you save a significant amount in interest and fees over your loan. For instance, paying an extra $100 each month towards a five-year, $30,000 loan at 7.5% p.a. would save you over $1,000 in interest and shave ten months off your term.
You may also find a redraw facility to be useful for your loan repayments. These enable you to withdraw from previous additional repayments made to use as you see fit, which adds greater flexibility to your overall loan experience. We work with lenders who can arrange both of these features on for your personal loan.
What types of personal loans can I compare?
There are several different types of personal loan which you can choose from, so it’s important to understand the differences between each of them before you apply. Some of the main types of loans include:
Unsecured personal loans
Unsecured personal loans are the most common personal finance type. These don’t require the borrower to attach an asset that they own, such as a car or other valuable vehicle, as collateral for their personal loan, which speeds up the overall process and makes it more accessible for a wider range of borrowers. As a result of this, though, you’re likely to have to pay more in interest and fees on this type of loan.
Secured personal loans
Secured loans, on the other hand, do require an asset to be used as collateral. The primary benefit of security on a personal loan is that it typically decreases your interest rate and can expand your borrowing power up to as much as $100,000. However, your asset must carry enough resale value to recoup any funds lost should you become unable to fulfil your loan obligations, so it’ll shape your borrowing power. Unlike car and home loans, though, there isn’t likely to be a requirement to use the funds for the purpose of buying the secured asset.
Lines of credit
Unlike standard personal loans, personal lines of credit offer you the ability to withdraw your approved funds whenever you need them from an account. This involves you being approved up to a set limit and having the freedom to access funds up to that limit at a pace which suits you, only paying interest on the funds you use. These typically come without set end dates because they can be kept open indefinitely, provided they remain sustainable and useful. Interest rates and fees can often be higher on these loans, however.
It's also worth considering the type of interest rate you may be charged on your personal loan. This can be one of two types: fixed interest or variable interest.
Fixed interest rates
Fixed rates are the most frequently occurring on personal loans, setting your interest at the beginning of the agreement and maintaining it at that level across the course of the loan. What this does for you is provide added certainty to your monthly repayments, enabling more accurate budgeting around them over your loan’s full term, and protect you from any increases in your lender’s rate throughout your repayment period. However, if rates fall soon after you take out your loan, you’ll be forced to pay more or pay your way out of your agreement early.
Variable interest rates
Variable rates, on the other hand, remain subject to fluctuation throughout your loan term. This means that you’re well-positioned to take advantage of any falls in your lender’s interest rate and save money on your loan. In equal measure, though, you aren’t as protected as you would be with a fixed rate if your rate rises. They’re also not as effective when it comes to budgeting, as you can’t be as certain about what they might cost months down the track.
How much will I be able to borrow?
While personal loans range from $2,000 to $75,000 in most cases, how much you can actually be approved for is another question entirely. Lenders assess borrowing power from applicants based on a variety of factors, including the following:
Your income and employment
It’s fairly obvious to say that the more you earn, the more you’ll be eligible to borrow and subsequently repay. With more money going into your account each week, fortnight or month, you’ll generally be able to take on a greater commitment. However, your employment will also affect this. If you’re in a stable job (such as full-time or permanent part-time) and have been for an extended period, it’s less likely for your income stream to dry up compared to a casual employee or someone who’s just started their own business, so lenders will feel more comfortable approving larger sums.
It’s not just your income which is important, though: what your commitments are when it comes to your living and other recurring expenses will also play a major role in determining what you’re eligible to borrow. A high income won’t count for much if you’re burdened with other costly expenses and liabilities like home, car and other personal loans. Lenders will use the cost of your regular expenses to determine what you’re capable of borrowing and take note of what each of them are to ensure you don’t find yourself struggling to repay them down the track.
Your credit score
Your credit score provides your lender with a clear indication of your reliability as a borrower when it comes to managing your debts. This includes things such as other loans, utility bills and lines of credit like a credit card or store credit. The higher your score, the more confident your lender will be in your ability to repay the personal loan you’re applying for.
Your history repaying personal or car loans
Although this relates to your credit file also, financiers look for borrowers with a proven track record when it comes to paying off other loans of a similar nature. For instance, if you were applying for a $20,000 personal loan and your lender could see that you successfully repaid a $15,000 loan 12 months ago without any trouble, you’d be more likely to be approved for a larger sum and a lower interest rate.
Your loan security (or lack thereof)
As mentioned previously, adding security to your loan will have a direct impact on your borrowing power. This is because it can not only extend the potential range beyond $75,000 up to $100,000 but the amount you’re ultimately approved for will rely on the value of the asset you’ve utilised as collateral for the loan. For instance, if your car was worth $60,000, you’re likely to be approved for $60,000 and not much more. If unsecured, though, all of the above factors will have a greater emphasis.
How do I maximise the effectiveness of my personal loan comparison?
There are several ways you can go about completing the process of comparing your personal loan options quickly and efficiently. Some of the ways to help you ensure you conduct a high-quality comparison and give yourself the best chance of selecting the most suitable loan for your needs are:
Figure out how much you can afford to borrow
Before diving into the personal loan comparison process, it's important to review your financial situation. If you don’t already have one, draw up a budget with your current income and expenses to see how much room you have for repayments. Play around with different figures using our personal loan calculator. You’ll see how different loan amounts, repayment terms, and interest rates will affect your current budget. Being realistic about what you can afford now can keep you out of financial stress down the line and increase your chances of nailing your personal loan choice.
Know your profile
Having a clear understanding of your profile as a borrower will give you greater clarity on the type of loan and lender which is best for you. Financiers differ when it comes to their eligibility criteria, so if you know you haven't been working in your new job for long or have a credit score which is only considered average, there'll be lenders which may not be able to work with you or offer less favourable deals. By entering your comparison with an idea of your risk profile, you can narrow down your finance options to those which can provide you with the finance you need at a reasonable price.
Compare with Savvy
Conducting your personal loan comparison with Savvy is a great way to help you quickly and easily find out the key information you need to decide on which finance offer is right for you. We’ve made personal loan comparison easy with our quick side-by-side comparison tool. You’ll be able to review personal loans from Australia’s most trusted lenders all in one place to help you find the best loan for your individual needs. Once you've chosen your lender, you can click straight through to their site and start the application process straight away.
How do personal loans compare to credit cards?
Credit cards are different to personal loans in that you can access funding up to a set limit whenever you need without a set repayment term (in much the same way as a line of credit). Much higher interest rates apply to credit cards than personal loans, which is one of the most substantial differences to be aware of.
You may think that a credit card is the best option for you when it comes to accessing financing for a range of purchases, but this may not always be the case. If you’re making smaller purchases which can be repaid within one month, you can take advantage of your credit card’s interest-free period and pay little extra. However, if you’re accessing an amount you’re not confident you can repay in that time and could risk being hit with rates as high as 20% p.a. or more, a personal loan may be better for you.
Types of personal loan
With an unsecured personal loan, you can potentially borrow as much as $75,000 without the need to attach any valuable assets, such as your car, as security. These loans are the most widely available and often the quickest, with same-day approval possible.
Secured personal loans, on the other hand, make use of collateral. This lowers your risk profile in the eyes of a lender, potentially lowering your interest rate and expanding your borrowing power beyond what you may be able to get through an unsecured loan.
Variable interest rates remain open to fluctuation during your term. This means you can benefit from decreasing rates and save on your loan if the market heads in that direction, although you’ll also pay more if rates start rising.
Fixed interest rates are locked at the beginning of your loan and remain constant throughout your repayments. This acts as a valuable protection against interest rate increases, as your loan will be unaffected, but you’ll miss out on potential drops as well.
If you’re paying off multiple debts at the moment, particularly those with high interest (such as credit card debts), consolidating them into one payment can not only make them more convenient to manage but also potentially save you money overall.
Looking to take off on a holiday with your family but want to pay it off at your own speed? Travelling can be expensive, so you can distribute the cost of your next trip over a period you’re more comfortable with by taking out a personal loan to pay for it.
There are so many costs that go into making your dream wedding a reality, from venue hire to catering to dresses and suits and so much more. By taking out a personal loan, you can start planning the big day you want, even if you can’t pay for it upfront.
Home improvements are desirable for a range of homeowners to help keep their living space fresh and interesting, not to mention increase its value. You can get past the financial hit of renovations with a personal loan paid in instalments.
Personal loans aren’t limited to PAYG employees, though. If you’re running your own business, you can still be approved for financing by submitting tax returns and other alternative documents instead of payslips and utilise your funds however you wish.
There’s a variety of expenses which come with being a student, ranging from the cost of your courses, textbooks and computer to your accommodation. Taking out a personal loan can make these costs more manageable by spacing them out.
Some lenders offer green personal loans, which are designed to be used for energy-efficient appliances and products such as solar panel and air conditioning installation in your home. You can qualify for lower interest rates and fees with this loan.
Why compare personal loans through Savvy?
More common questions about comparing personal loans
Helpful personal loan guides
Still looking for the right personal loan?
Personal loans come in all shapes and sizes, so read more about the ways you can use them, as well as how they might work for you.