Compare Australia's top variable rate personal loans

Advantages and disadvantages of a variable interest rate

When you compare the advertised interest rates for variable rate personal loans, keep in mind that what you see may not end up being what you get. If your lender cuts its interest rates, you may end up with lower monthly repayments than you initially budgeted for, leaving you with some surplus cash available.

While you may want to put these savings to use somewhere else, many variable rate personal loans also offer the flexibility to pay extra onto your loan, allowing you to get ahead of your repayment schedule, bringing you closer to fully paying off your personal loan and making an early exit.

However, it stands to reason that if interest rates on your personal loan can fall, they can also rise in the right economic conditions. Increasing interest rates can lead to more expensive monthly personal loan repayments, which can leave you short if you haven’t budgeted accordingly. This can make variable rate personal loans a bit more high-maintenance to look after than their fixed rate counterparts.

Comparison rate

While it’s worth comparing the advertised interest rates when choosing a lender for your personal loan, it’s also worth remembering that the lowest advertised interest rate doesn’t guarantee that you’re getting the cheapest personal loan deal available. Even if your lender doesn’t raise its rates, a low interest personal loan that charges high fees could be ultimately more expensive overall than a personal loan with higher interest rates and lower fees and charges.

One alternative is to look at each personal loan’s Comparison Rate, which combines its advertised interest rate with its standard fees and charges, to provide a more accurate guideline of the approximate costs of different personal loans.

It’s also worth keeping in mind that the each lender may charge nonstandard fees that aren’t included in the personal loan’s Comparison Rate. Alternatively, they may offer extra features and benefits that could make their personal loan more appealing to you. It’s worth doing your homework after using the Comparison Rates to narrow down your shortlist of potential personal loans.

Debt consolidation

If you owe money to a variety of different lenders, then you may find yourself struggling to manage multiple repayments each month, as well as paying interest on each debt, each at a different rate.

A simpler option could be to take out a personal loan to consolidate these debts. Not only would this mean making only one repayment per month, but you’d also be making just the one interest payment per month, which could potentially work out cheaper than the previous arrangement.

Not every variable rate personal loan can be used for debt consolidation, so it’s a good idea to check first when making your comparisons, if that is your goal.

Secured/unsecured personal loans

If you’d prefer to keep your personal loan’s interest rates on the low side, then you may want to consider securing your loan. Secured personal loans guarantee the sum you borrow against the value of an asset that you own, whether that’s a car, equity in your property, or something similar. Of course, to apply for one of these loans, you’ll need one of these assets with enough value to reduce the lender’s financial risk, so you can in turn enjoy a lower interest rate.

Unsecured personal loans are also available, for when you don’t have access to a high-value asset, or if you’d prefer not to risk losing your asset to the lender if you’re unable to make your repayments. However, due to their relatively high lender risk, these personal loans tend to have higher average interest rates than similar secured personal loans.

Early exit/extra repayment penalties

One reason why many people love variable interest rate loans is the flexibility they offer.

If your lender chooses to cut interest rates, your monthly repayments could end up going down as a result, which gives you a choice – do you keep the savings from this discount, or do you take this opportunity to pay a little bit extra onto your loan, potentially paying it off early and ultimately paying a bit less in interest?

If this prospect appeals to you, keep in mind that some lenders charge fees for making extra repayments on a personal loan or for making an early exit, to help make up for the interest payments they’d be missing out on. These fees tend to be more common for Fixed Rate personal loans with pre-set repayment plans, though they are sometimes also applicable for Variable Rate Personal Loans.

Don’t end up surprised by extra charges if you try to pay off your personal loan early!

Redraw Facility

When you have extra money available in your bank account, whether it’s from a bonus, a tax refund, or left over in your budget following a rate cut, you may decide that making an extra repayment on your personal loan would be a great idea to bring you closer to getting your loan fully paid off.

But what if there was an emergency and all of your cash was tied up in your personal loan?

With this in mind, some lenders include a Redraw Facility as part of their personal loans. This nice little feature can be used when you get ahead on your personal loan repayments, and allows you to withdraw the surplus balance, subject to your lender’s terms and conditions.

By providing you with extra flexibility in how you use your finances, you’ll have the option to make extra repayments onto your personal loan with confidence that you can still access this money again if you really need it.

100% Personal Loans

Do you have a deposit all saved up and ready to get your personal loan started? No? Well, that doesn’t mean you have to miss out on your dream wedding or home renovation.

Some lenders offer high LVR (Loan to Value Ratio) personal loans, where your deposit is smaller, and you borrow a greater percentage of your total instead. Some lenders can even provide personal loans where you borrow 100% of the balance, with no deposit required.

If you do choose a high LVR or 100% personal loan, remember that you may find yourself paying a higher than average rate of interest, to make up for increased financial risk to your lender.

It may be worth weighing up whether it would be more affordable for you to make higher monthly repayments, or to save up a full deposit before taking out a personal loan.