The big banks might need to start slashing interest rates if they want to compete in the personal loan market, and ANZ is currently leading the charge.
According to the June Mozo Banking Round-up, ANZ dropped the fixed rate on its unsecured loans to 10.99%, down from 13.95%. Although it bumped up the variable rate by 1%, to 15.99% at the same time, ANZ now has the lowest fixed rates on both secured and unsecured loans among Australia’s big four banks.
Big bank personal loan fixed rates
But all big bank rates on personal loans are still relatively steep, with some unsecured options coming in as much as 8.70% higher than the leading rate in the market, on offer from G&C Mutual Bank.
On a personal loan of $15,000 over a 5 year term, this difference in rates could mean as much as $3,870 in interest, Mozo’s personal loan calculator shows.
According to Mozo Research and Insights Director Andrew Duncanson, the big banks have barely made any changes to their unsecured personal loan rates between 2013 and 2017.
But as more and more Aussies spenders turn to personal loans instead of credit cards to fund big spends, big banks may need to start lowering personal loan rates to keep up with competitive offers from smaller banks or peer-to-peer lenders. These challenger brands have generally been more open to rate changes than the major banks, and often offer lower rates.
Peer-to-peer platforms in particular, which run with few overhead costs and offer tailored financing options, may pose a challenge to the big banks. The best unsecured loan rates on the market at the moment come in under 8%, and are generally on offer from mutual banks and peer-to-peer lenders, according to Duncanson.
What to consider when choosing a personal loan
Looking for a personal loan to fund your wedding, holiday or new car purchase? Here are a few things to keep in mind, to be sure you’re getting the best bang for your buck.
- Secured vs unsecured. As you can see from the big bank table above, unsecured personal loans come with considerably higher interest rates attached than secured loans do. That’s because with a secured loan, you’re putting up an asset as collateral against the loan so there’s less risk for the lender. If you have an asset like a house or car that can be used as security, choosing a secured loan may be a good way to save on interest.
- Your credit score. With some lenders, particularly peer-to-peer options, your interest rate might be determined by how good your credit score is. If you opt for one of these lenders, keep in mind that an “excellent” credit history might bag you a rock bottom rate, but a not-so-good score may wind up costing you more interest.
- Loan term. The length of the loan term you choose may come down largely to your budget. A short loan term will cost you less in interest overall, but will mean higher monthly repayments. A long loan term, on the other hand, means more manageable monthly repayments, but will cost you more in interest over the life of the loan. Before applying, think carefully about your budget and what option is best for you.
And finally, make sure you swing by our search tool to compare personal loans before making a choice.