Personal loans have an image problem: Aussies with credit card debt would not consider using a personal loan
Aussies are shying away from personal loans due to a lingering stigma
23 November 2022
- 85% of Aussies with credit card debt would not consider using a personal loan to consolidate debt, with 42% viewing it as a product for people in financially severe situations
- The average unsecured personal loan rate in the Mozo database is 9.76%, compared to the average credit card rate which is 17.12%
- Analysis shows that consolidating debt into a low-rate personal loan could see Aussies crush their debt and pay less interest in the process
- The leading unsecured personal loan rate in the Mozo database go from as low as 5.15%
- MOVE Bank was recognised as Personal Loan Provider of the Year in the annual Mozo Experts Choice Awards
New research from financial comparison site Mozo.com.au has revealed that Aussies who could be paying high credit card interest are shying away from personal loans, despite the average interest rate sitting at a whopping 7.36% below the average credit card rate.
Mozo’s nationally representative survey found that 85% of Australians with credit card debt would not consider a personal loan to consolidate their debt, with almost half (42%) viewing it as a product for people in severe financial situations.
“Aussies have been quick to judge personal loans, But in reality, if used correctly, a personal loan could give them the opportunity to crush their debt and pay less interest in the process,” said Claire Frawley, Personal Finance Expert at Mozo.
The Mozo database shows that the average unsecured personal loan rate is 9.76%, compared to the average credit card rate which is 17.12%.
The leading personal loan rate in the Mozo database is from online lender Cashify. Rates go from as low as 5.15% and come with a $498 application fee and a $10 monthly fee.
“While balance transfer credit cards are marketed as a popular option for debt consolidation, often people just end up kicking their debt down the road. A personal loan gives them a fixed timeframe to clear their debt.”
For example, say someone had $5,000 credit card debt with a 17.12% interest rate and a $20,000 used car loan at an 8.09% interest rate. Their combined repayments would be $806 per month. Paying down the balance over the course of three years would cost them a total of $4,020 in interest.
Taking out a debt consolidation personal loan of $25,000 with a leading interest rate in the Mozo database of 5.15% would reduce the monthly repayments to $751, and take the interest paid over three years down to $2,034, saving them a total of $1,986.
“Right now Aussies are already feeling the pinch from the higher cost of living. So we really need to remove the stigma surrounding personal loans as it could be costing people thousands,” Frawley said.
To determine the best value personal loans, Mozo experts analysed 250 personal loan products issued by 86 Australian financial institutions as part of the 2023 Mozo Experts Choice Awards, recognising MOVE Bank as Personal Loan Provider of the Year. Other winners include:
- Heritage Bank received honours in both the Used Car Loan and Unsecured Personal Loan award categories
- RACQ Bank took out a top place in the Unsecured Personal Loan category
- NOW Finance was recognised with an Excellent Credit Secured Personal Loan award and Excellent Credit Unsecured Personal Loan award
- Police Bank received an award in the Unsecured Personal Loan category
Notes: Mozo commissioned a nationally representative survey of 2,297 Australians conducted by Researchify in August 2022. Average & leading interest rates are correct as at 17 November 2022, the average Credit Card rate excludes introductory offers or cards with 0% interest and a monthly fee. Personal loan debt consolidation savings calculation does not take into account application and monthly fees and assumes the balance is paid down within the 3-year loan term.