Personal loan comparison

The RBA held the cash rate steady at 4.35% during its September meeting, citing ongoing inflationary pressures. While many had hoped for a rate cut, it appears that borrowers may need to wait longer for any reduction in official rates. However, in the meantime, you can still give yourself a “rate cut” by shopping around and comparing your options.

While the cash rate is an important factor influencing personal loan rates, other factors such as the purpose of the loan, whether it’s secured or unsecured, and your credit score play a significant role in determining the rate you’ll pay. By carefully comparing available options, you can ensure you’re getting the best deal and making a financial decision that suits your needs before applying for a personal loan.

Here are some of the most competitive personal loans on the RateCity database at the time of writing:

Here are some of the lowest rate secured personal loan options for October 2024:

Bendigo & Adelaide Bank Ltd Secured Green Personal Loan at 5.49% (comparison rate 5.84%)

Illawarra Credit Union Limited Online Personal Loan Package at 6% (comparison rate 6.64%)

Bank of us Secured Residential Estate Personal Loan at 6.29% (comparison rate 6.57%)

Bank of Melbourne Secured Personal Loan Fixed* at 6.49% (comparison rate 7.69%)

OurMoneyMarket Services Pty Ltd Low Rate Personal Loan Secured at 6.57% (Excellent Credit) (comparison rate 7.19%)

Here are some of the lowest rate unsecured personal loan options for October 2024:

Harmoney Australia Limited Unsecured Personal Loan (Excellent Credit) (Amount > $5000) at 5.76% (comparison rate 6.55%)

Credit Union SA Ltd Tesla Powerwall Loan (HL members) at 5.84% (comparison rate 5.84%)

Police Credit Union Solar Eco Loan at 6.24% (comparison rate 6.24%)

Gateway Bank Ltd Eco Personal Loan at 6.44% (comparison rate 7.45%)

Horizon Bank Green Personal Loan at 6.49% (comparison rate 6.63%)

360 Finance Unsecured Personal Loan at 6.52% (comparison rate 7.76%)

*Same offer for BankSA and St.George

Source: RateCity.com.au. Data accurate as of 02 October 2024.

A personal loan allows you to borrow a lump sum of money for a specific personal use. Depending on the lender and your financial situation, you may be able to borrow between $2,000 and $100,000 with a personal loan. You then repay the loan amount, plus interest, over a predetermined length of time, known as the loan term. This term could be anywhere from 1 to 7 years long.

Personal loans can be used for a wide variety of purposes, from paying for university fees and legal costs, to getting on top of other debts. A lender may ask why you are borrowing money when you apply for a personal loan, as the loan’s purpose may influence your application’s chance of approval.

One popular reason that some Australians apply for personal loans is to help pay for renovations to their property, whether to improve their lifestyle at home, or increase the value of their investment. When financing a renovation or buying a big-ticket item, some homeowners use their home loan to access the money they need. Others finance their project by taking out a personal loan. But which option is the right choice for you? Before you apply for a personal loan, it’s important to consider whether now is the best time to consider undertaking a renovation project, and if are there any risks or hazards to avoid.

You may also be able to get a personal loan in Australia for: 

• Buying a car: Car loans are specialised personal loans for buying vehicles, and may be secured by the value of the car being purchased.
• Debt consolidation: Rolling other debts such as credit cards into one personal loan could help you manage your repayments and potentially help save on interest charges.
• Holidays: The right personal loan can help you go on a trip to remember, and pay for it gradually over time.
• Weddings: It’s no secret that your special day can be expensive and stressful, though a personal loan could help ease some of the financial pressure.
• Student fees: Investing in your education with the help of a personal loan could help to improve your future career prospects.
• Hospital bills: If your health insurance isn’t enough to cover your medical costs, a personal loan may be able to help.
• Veterinary bills: You could use your personal loan to pay for treatment for your feathered, furred, or finned friends.
• Dental work: A personal loan could help cover the cost of routine or major dental procedures.
• Cosmetic surgery: Reconstructive and elective surgeries can be paid for with the right personal loan.
• Rooftop solar: Using a personal loan to add green features to your home could also help to shrink your future energy bills.
• Boat loans: A specialised type of personal loan that could help you finance a boat and get out on the water.

Before you start your comparison, it’s worth figuring out what type of personal loans may best fit your needs. 

Secured personal loans

A secured personal loan uses an asset, such a car, as collateral for the money being borrowed. If you don’t keep up with your repayments, the lender can seize the security asset to help them recover their financial losses. 

Secured loans often have lower interest rates than unsecured loans as lenders consider them less risky, as the borrower is motivated to make repayments to avoid losing their asset. This lower risk could let you borrow more money, or raise your loan application’s chance of approval if your credit score isn’t as high as you'd like. 

Unsecured personal loans

An unsecured personal loan doesn’t have an asset attached as collateral, so they may be riskier for lenders. While this means unsecured personal loans are more likely to have higher interest rates than secured personal loans, there's also no risk of losing an asset if you default. 

Debt consolidation loans

A debt consolidation personal loan may be able to help you manage other outstanding debts by combining them into a single personal loan. With just one regular repayment to manage, one interest rate, and one set of fees, 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 can clear all these debts at once, leaving you with just one loan to manage. You’ll be charged interest at a single rate (which is often lower than the rates charged on most credit cards) and pay just one set of loan fees. This may cost you less per month than managing three credit products separately, and help simplify your budgeting.

Keep in mind that if you apply for a personal loan with a lengthy loan term, you may pay more in interest on your outstanding debts than you would by paying them off separately over shorter terms, even if your new interest rate is lower and your monthly repayments are cheaper.

Line of credit

A line of credit is a personal loan that functions similarly to a credit card. Rather than borrowing a lump sum that's repaid over time, you can borrow and repay money up to a maximum credit limit, which is often based on the value of the asset used as security, such as a vehicle, or equity in a property.

Guarantor personal loans

A family member or friend may be able to guarantee your personal loan to increase your chances of approval. By co-signing your loan, the guarantor accepts responsibility for the debt if you’re unable to repay the loan, making it less risky for the lender to loan you money.

You could apply for a guarantor personal loan if you don’t meet the eligibility criteria for a personal loan on your own. However, make sure you only borrow an amount you can afford to repay. Failing to meet your repayments could strain your relationship with the guarantor as the financial responsibility for the debt will shift onto them.

There are many different features to consider when choosing a personal loan. Careful comparison of the following personal loan features can help you find the right product for your needs, because the best personal loan for one person may not be the best choice for someone else.

Most personal loans have a minimum amount of at least $5000. To borrow less than $5000, you may need to search for a payday loan or medium-amount loan, though the fees involved could be high. Borrowers experiencing financial stress may also be able to apply for the No Interest Loan Scheme (NILS) for essential purchases.

The maximum borrowing amount for a personal loan may depend on the lender, though a maximum amount of between $50,000 and $100,000 is not uncommon. The maximum amount a lender will allow you to borrow may also depend on factors such as your credit score or credit rating, your income and expenses, or what you use as security for the loan. Generally, the more you can lower a lender’s risk, the more they may be willing to lend you.

Personal loan terms can be for anywhere from six months to ten years, with many lasting between 12 and 60 months. 

Choosing a longer loan term means smaller monthly repayments, easing some of the pressure on your household budget. However, the longer you take to pay off a personal loan, the more interest and fees you’ll pay in total.

The reverse is also true – a shorter personal loan term will likely cost you more from month to month, but you’ll clear the debt sooner and pay less total interest. 

Sometimes a personal loan with a low interest rate but a long loan term can actually cost more in total than a personal loan with a higher rate and a shorter loan term.

You can use a Personal Loan Calculator to work out how a loan's term may affect your personal loan repayments, and whether a shorter or longer personal loan term may better suit your goals and financial needs.

Your credit score could affect your personal loan options, including the lenders and the interest rates available to you. Lenders use your credit score to measure your creditworthiness, or how likely you are to repay the loan.

If your credit score is low, you may find it challenging to get a personal loan application approved, or you may only be eligible for loans with higher interest rates, which may only be available from specialised lenders. But an excellent credit score could give you access to more personal loans from a wider range of lenders. You might also become eligible for lower interest rates on some personal loans, as borrowers with high credit scores may be viewed as less risky than those with bad credit scores.

That said, there’s much more to a personal loan application than just your credit score. Consider the eligibility criteria of each individual offer before you apply for a personal loan.

Borrowers with bad credit may still be able to find a personal loan that works for them by carefully comparing the available options. It’s also worth thinking about the steps you can take to improve your credit score, such as paying off existing debts and building your savings.

1. Check your credit score

Knowing your credit score can help you better understand which personal loans and interest rates might be available to you. You can visit RateCity’s credit score hub to access your score within minutes.

2. Assess your budget

Consider using RateCity’s personal loan calculator to estimate your loan repayments and ensure you can comfortably afford them on your budget. This could help you make an informed decision on how much you can afford to borrow before you apply, potentially increasing your chances of approval.

3. Search and compare

RateCity’s comparison tables allow you to easily compare personal loans from a wide range of lenders. By adjusting the filters, you can find the options that may best suit your individual needs.

4. Check the lending criteria

Once you have compiled a personal loan shortlist, check to see whether you meet their eligibility requirements. When you apply, you will often need to provide your income and expenses, as well as proof of age, identity, and proof of citizenship or residency. 

5. Prepare your application

Depending on the lender, you may have the option to submit your personal loan application online or at a local branch. It’s a good idea to have all your required documentation ready before you get started.

6. Submit your application and await a decision

After submitting the information required, it’s time to await a response from the lender. In some cases, you could see your application approved immediately, or within the hour, or by  the next business day – check with the lender to find out their expected timeline.

To take the hassle out of shopping for a personal loan, RateCity has several tools that may be useful to you: