Fixed rate personal loans – Keep your budget predictable
A flexible personal loan can pave the way for your dream wedding, holiday, car, or more. But you may not always want a flexible interest rate to go along with it. Instead, like most Aussie borrowers, you’re likely keen to avoid any uncertainty over your household budget.
That means choosing a locked rate that fixes your repayments to the same spot. Before you sign on the dotted line, read up on fixed rate personal loans to make sure you’re getting the best deal.
What’s a fixed rate personal loan?
A fixed rate personal loan does justice to its name by offering you a constant interest rate over the life of your loan. If your rate is set in stone, the domino effect includes locked repayments, a budget you can control, and more financial security and peace of mind.
A fixed rate will stay stable because it’s not under the influence of the Reserve Bank cash rate. So even if market rates shoot up, a fixed rate weathers the storm. In the same vein, if rates tumble, a fixed rate will also sit it out. Generally, most Australian lenders offer this type of loan, which is often the more common option for borrowers.
How do fixed rate personal loans work?
If your application is approved and you accept the rate on offer, that rate won’t change until you clear your debt. Typically, the lender calculates your rate based on the size of your debt, the time you’ll take to repay, your credit rating, the current trends in market rates, plus a host of other factors. Besides a locked interest rate, the loan also comes with the following parts:
- Loan amounts. On average, you can pocket between $2,000 and $50,000 depending on your borrowing capacity. Your borrowing capacity is in turn affected by a stack of factors, including the health of your credit rating and income and whether the debt is secured or unsecured.
- Loan terms. Generally, repayment periods can last as long as 12 or 24 months for small personal loans and 5 or 7 years for larger sums.
- Monthly repayments. Settling your debt means you’ll have to send regular repayments through to the lender. Although fixed-rate loans offer security budget-wise, it’s best to figure out what you’ll actually be paying before the agreement kicks in. Our fixed rate personal loan calculator is an easy-to-use tool if you want to find a monthly repayment that keeps your budget stable. Simply plug in your amount and term, and it does the math for you.
Pros of fixing your rate
- Easy budget work. Keeping a pulse on your budget is easier since you already know what your future repayments will be.
- Protection from rate increases. If market rates hike upwards, your repayments will remain untouched. That means you pay for exactly what you ordered for each instalment.
- You can calculate the total cost of the loan beforehand. This is handy if you want to factor in your long-term financial goals when taking out a personal loan.
Cons of fixing your rate
- Less flexible. Your fixed rate loan might lack features like redraw facilities and the option to make early repayments. If the lender allows you to make early repayments, they may charge a fee.
- Higher interest rates. You’ll often start out with a higher rate when you choose to fix.
- No benefits when the cash rate decreases. Unfortunately, protection from interest rate increases also means you won’t enjoy any low-interest benefits when the cash rate falls.
Variable rate loans vs fixed rate personal loans
Another type of interest rate that’s also offered by Australian lenders is the variable rate. Variable interest rates “track” changes in the Bank of Australia’s cash rate and adapt accordingly. In other words, the rate isn’t locked and might fluctuate at one time or another.
Although fixed rate loans usually fly off the lender’s shelves faster than variable rate loans, having an unlocked rate has its own merits. You can read up more on this in our variable rate personal loans guide.
Types of personal loans with fixed interest rates
Personal loans with fixed rates can be split into two types – those which require collateral and those which don’t:
- Secured fixed rate personal loans. In this arrangement, collateral backs your debt and provides security for the lender who can collect your asset if you default. Collateral can be the asset you’re purchasing with the borrowed funds as with car loans. Or it can be property that you already own. Since you’re reducing the lender’s financial risk, you’ll likely end up with a lower rate. You can also get approval if you have bad credit or grey areas in your eligibility status.
- Unsecured fixed rate personal loans. With this loan option, there’s no collateral required. But since you’re not giving the lender a guarantee for the money you borrow, they can only hand out funds if your credit rating is in good shape. In addition, you might have to pay a higher interest rate to minimise the lender’s risk.
When should you choose a fixed rate?
Generally, you’ll likely fare better with a fixed rate under the following circumstances:
- Your budget can’t take any “shocks.” If you’re already running on a tight budget, squeezing in more finance costs after a rate increase might leave you struggling. A fixed rate removes this risk, making it safer, particularly when you can’t be sure about the future of your income.
- You need a longer repayment period. If you’re planning to hang onto your debt for longer, a fixed rate makes sense. That’s because it’s harder to predict market trends for the long run.
- Interest rates are predicted to rise. When the market looks uncertain, it’s best to push for stability and security by fixing. Your rate will remain on the lower side even if market rates spiral up.
How to choose the best fixed rate personal loan for your needs
The straight path to securing the best fixed rate deal typically involves taking the following steps:
- Consider the comparison rate. A low interest fixed rate personal loan may help you save hundreds or even thousands of dollars over the long term. But the “real” rate for your loan is one that combines the interest rate plus fees and charges. This rate is the comparison rate, and looking for the lowest comparison rate possible helps you locate the cheapest fixed rate personal loans on the market. Also, be mindful of other charges and fees that might exist outside the comparison rate. These can also impact the true cost of your loan when activated.
- Check for repayment flexibility. A flexible personal loan comes with the go-ahead to make extra repayments if you want to. It’s a bonus if the lender doesn’t charge early repayment fees. Paying off your loan faster allows you to reduce interest costs, which leaves you with more cash flow to do other things.
- Get a personalised quote. You may not always be able to get the advertised rate, so a quote shows what the lender is actually willing to offer you. However, you need to tread carefully. Some lenders carry out hard credit checks when you apply, and this can leave a mark on your credit file. Instead, it’s best to get quotes from lenders that only use soft search tools since this won’t affect your credit score.
- Look for a flexible lender. Some credit providers offer well-rounded loan packages that include discounts and online accounts that help you stay on track with your repayments. Other perks include redraw facilities that allow you to withdraw the extra repayments you’ve sunk into your loan.
How to apply for a personal loan with a fixed rate
Comparing options and choosing a personal loan that fits your bill becomes easier if you’re using our product table above. Once you’ve made your choice, go ahead and click the “Go to Site” button. Keep in mind that applying on the lender’s website generally requires you to have some info and documents on hand:
- Personal and contact details
- Employment details
- Details about expenses, assets, liabilities, and other debts you have
- Proof of identification that shows you’re an Australian citizen who’s 18 years and above
- Proof of income – payslips and bank statements
Fixed rate personal loans FAQ
Can I use a fixed rate personal loan for anything?
Personal loans have many uses, including debt consolidation, which bundles all your other debts into one repayment. However, it’s best to check with the lender to make sure they approve the use you have in mind.
Which fees should I look out for when applying?
Common fees to watch out for include:
- Application fees
- Establishment fees
- Monthly or annual fees
- Late payment fees
- Early repayment fees
- Redraw fees
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