How a risk-based personal loan could benefit you
Ever heard of risk-based pricing or personalised interest rates? Well, if you’re on the hunt for a personal loan it may be something to get familiar with.
Risk-based pricing refers to the interest rate that a bank or lender offers a customer, based on their credit rating. And it’s becoming more popular among Aussie personal loan lenders.
“It’s really taken off in the last 10 years or so,” Mozo Banking Expert, Peter Marshall says.
“It used to be quite rare but as more and more information is getting put on people’s credit files, more lenders have decided to use that deeper information to inform their pricing, so it has become a lot more common now.”
How does risk-based pricing work?
As the name indicates, risk based pricing is calculated based on how much risk the potential borrower poses to the lender.
David Norman, chief operations officer of online personal loan lender NOW FINANCE, explains that with risk-based pricing, customers receive an interest rate that is tailored to their credit and financial situation. This is instead of the traditional “one-size-fits-all” lending model where there is a single advertised interest rate which everyone gets.
“Lenders calculate personalised interest rates algorithmically, taking into consideration a customer’s unique circumstances,” he says.
“At NOW FINANCE, we have built a proprietary machine-learning pricing engine that uses a person’s credit score, postcode, and employment and residential statuses to determine their guaranteed personalised rate.”
Instead of having a settled interest rate, risk-based personal loans products are advertised with a minimum and maximum loan rate. The lender can offer borrowers any rate between those two numbers, based on a customer’s data.
Simply put, if the lender views a borrower as “low-risk” they offer them the lower rate. However, if a customer falls on the other side of the fence and is deemed “high-risk”, by having a lower credit rating, the lender offers the higher interest rate.
But risk-based pricing isn’t only beneficial to people with good credit history
While it might seem that these types of personal loan products are designed just to benefit customers with excellent credit, this is actually not the case.
“There’s also a benefit to borrowers that might have a low credit rating, because a lot of lenders who offer a single rate may have tighter criteria about who they will give that rate to,” Peter Marshall says.
“Borrowers with a low credit rating might find themselves locked out of some lenders based on that criteria.”
Marshall explains that these loans provide particular consumers with an opportunity to borrow who otherwise may not have been eligible. Risk-based loans are also a good way for customers to rebuild their credit rating if it isn't looking healthy at the moment. Or they can help a particular customer establish a credit history if they haven’t done much or any borrowing before.
“Having the option, even if it is at a higher cost, to borrow money can actually help to rebuild your credit rating. Just as long as you can pay your loan back over time and meet all of your repayments on time,” Marshall says.
“Say you take out a personal loan now, and you have a not-so-good credit rating, you can use that as an opportunity to rebuild your credit rating. It will help you when you want to borrow more money for something like a home loan because you are more likely to qualify for a loan.”
Marshall also stated that most of these risked-based loans have variable rates. He says that for customers that do end up on a higher interest rate, they should initially try and make extra repayments to pay off the loan quicker. Not only will this go towards building up your credit rating but it will also mean that you’ll end up paying less in interest.
RELATED ARTICLE: 6 tips for improving your credit rating during COVID-19
Want to compare some killer personal loan options? Take a look at the table below or jump over to our personal loan comparison tool.
Compare Personal Loans 2020 - last updated January 23, 2021
- Hot DealNo Fee Personal Loan for loans up to $40,000!
Unsecured Personal Loan
Fixed, $5,000 - $40,000
interest rate
comparison rate
Monthly repayment
6.95% p.a.to 17.95% p.a.6.95% p.a.to 17.95% p.a.based on $30,000
over 5 yearsTerms from 2 to 7 years. Representative example: a 5 year $30,000 loan at 6.95% would cost $35,599.71 including fees.
Pay ZERO fees on loans up to $40,000 with NOW Finance. With no establishment fee, ongoing fees or early payout fee. What’s more, get your guaranteed, tailored interest rate in two minutes with no impact on your credit score! Winner of Mozo's Experts Choice Unsecured Personal Loan 2021 award^.
CompareCompareUnsecured Personal Loan
Pay ZERO fees on loans up to $40,000 with NOW Finance. With no establishment fee, ongoing fees or early payout fee. What’s more, get your guaranteed, tailored interest rate in two minutes with no impact on your credit score! Winner of Mozo's Experts Choice Unsecured Personal Loan 2021 award^.
- interest rate
- 6.95% p.a.to 17.95% p.a.
- comparison rate
- 6.95% p.a.to 17.95% p.a.based on $30,000
over 5 years
- Upfront fee
- $0
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Weekly, Fortnightly
- Early repayment penalty
- 0
- Minimum loan amount
- $5,000.00
- Maximum loan amount
- $40,000.00
- Minimum loan term
- 2 Years
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Rates based on borrower with excellent credit score. Maximum 3 year term for loan amounts $8,000 or less.
Read our Mozo Review to learn more about the NOW Finance Unsecured Personal Loan
Low Rate Personal Loan (Fixed, Unsecured)
Excellent Credit
interest rate
comparison rate
Monthly repayment
6.75% p.a.to 8.48% p.a.6.96% p.a.to 8.69% p.a.based on $30,000
over 5 yearsTerms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 6.75% would cost $35,580.23 including fees.
OurMoneyMarket offer competitive low rates on loans up to $50,000, plus free extra repayments and fee-free redraw facility. Winner of Mozo's Experts Choice Unsecured Personal Loan 2021 award^.
CompareCompareLow Rate Personal Loan
OurMoneyMarket offer competitive low rates on loans up to $50,000, plus free extra repayments and fee-free redraw facility. Winner of Mozo's Experts Choice Unsecured Personal Loan 2021 award^.
- interest rate
- 6.75% p.a.to 8.48% p.a.
- comparison rate
- 6.96% p.a.to 8.69% p.a.based on $30,000
over 5 years
- Upfront fee
- $150
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $2,001.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 1 Year
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Rate for Excellent Credit
Read our Mozo Review to learn more about the OurMoneyMarket Low Rate Personal Loan
Personal Loan
Variable, Unsecured
interest rate
comparison rate
Monthly repayment
5.75% p.a.to 25.99% p.a.6.47% p.a.to 29.2% p.a.based on $30,000
over 5 yearsTerms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 5.75% would cost $35,190.18 including fees.
Get a personalised rate quote in just 2 minutes, apply in just 7 minutes. Money transferred to your account the next business day. No exit or early repayment fees. Borrow up to $50,000.
CompareComparePersonal Loan
Get a personalised rate quote in just 2 minutes, apply in just 7 minutes. Money transferred to your account the next business day. No exit or early repayment fees. Borrow up to $50,000.
- interest rate
- 5.75% p.a.to 25.99% p.a.
- comparison rate
- 6.47% p.a.to 29.2% p.a.based on $30,000
over 5 years
- Upfront fee
- $0
- Monthly fee
- $10.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $5,000.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 1 Year
- Maximum loan term
- 7 Years
- Security required
- Unsecured
- Other benefits
- -
- Other restrictions
- Loan application fee ranges between 0% and 5% for loans with interest rates above 5.75% p.a.
Read our Mozo Review to learn more about the Symple Loans Personal Loan
Unsecured Personal Loan - Excellent Credit
Fixed over 5 years
interest rate
comparison rate
Monthly repayment
7.99% p.a.to 10.49% p.a.7.99% p.a.to 11.92% p.a.based on $30,000
over 5 years5 year term only. Representative example: a 5 year $30,000 loan at 7.99% would cost $36,488.90 including fees.
Be rewarded for your good credit history with low rates. Plus there are no ongoing fees and you can pay off your loan with no early repayment penalties. Simply apply online and get a quote in minutes.
CompareCompareUnsecured Personal Loan - Excellent Credit
Be rewarded for your good credit history with low rates. Plus there are no ongoing fees and you can pay off your loan with no early repayment penalties. Simply apply online and get a quote in minutes.
- interest rate
- 7.99% p.a.to 10.49% p.a.
- comparison rate
- 7.99% p.a.to 11.92% p.a.based on $30,000
over 5 years
- Upfront fee
- $0
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Fortnightly, Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $5,000.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 5 Years
- Maximum loan term
- 5 Years
- Security required
- Unsecured
- Other benefits
- Establishment fee from 0% (with maximum fee of $995) is added to principal loan amount and not paid upfront, amount shown is the minimum of $0.
- Other restrictions
- Interest rate and establishment fee vary according to Equifax credit score. Rates and fees shown are for a Tier 1 (Excellent Credit) graded borrower. Minimum employment income of $30,000 p.a. Application fee added to principal amount of loan.
Read our Mozo Review to learn more about the SocietyOne Unsecured Personal Loan - Excellent Credit
Personal Loan
Fixed, Secured
interest rate
comparison rate
Monthly repayment
5.99% p.a.to 21.99% p.a.7.26% p.a.to 23.15% p.a.based on $30,000
over 5 yearsTerms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 5.99% would cost $35,820.67 including fees.
Offering loans from $3,000 at a fixed rate for the life of the loan. You can check your personal loan interest rate before applying in 3 minutes with no impact to your credit score. Repayments can be made weekly, fortnightly or monthly and extra repayments are accepted.
CompareComparePersonal Loan
Offering loans from $3,000 at a fixed rate for the life of the loan. You can check your personal loan interest rate before applying in 3 minutes with no impact to your credit score. Repayments can be made weekly, fortnightly or monthly and extra repayments are accepted.
- interest rate
- 5.99% p.a.to 21.99% p.a.
- comparison rate
- 7.26% p.a.to 23.15% p.a.based on $30,000
over 5 years
- Upfront fee
- $250
- Monthly fee
- $13.00
- Exit fee
- $0.00
- Late payment fee
- $35.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- $300 in first half of loan, $0 in second half.
- Minimum loan amount
- $3,000.00
- Maximum loan amount
- -
- Minimum loan term
- 1 Year
- Maximum loan term
- 7 Years
- Security required
- Various
- Other benefits
- -
- Other restrictions
- To receive minimum rate applicants must be a new Personal Loan customer. Application fee is $140 for loans under $5,000.
Read our Mozo Review to learn more about the Latitude Personal Loan
Unsecured Personal Loan
Fixed
interest rate
comparison rate
Monthly repayment
6.99% p.a.to 25.69% p.a.7.79% p.a.to 26.65% p.a.based on $30,000
over 5 yearsTerms from 1 to 5 years. Representative example: a 5 year $30,000 loan at 6.99% would cost $36,208.67 including fees.
Fast, easy and 100% online, this is a low cost loan with no ongoing fees or extra repayment penalties. It's perfect for savvy borrowers with great credit. If you’re over 18 and earn above $30,000, you'll likely qualify.
CompareCompareUnsecured Personal Loan
Fast, easy and 100% online, this is a low cost loan with no ongoing fees or extra repayment penalties. It's perfect for savvy borrowers with great credit. If you’re over 18 and earn above $30,000, you'll likely qualify.
- interest rate
- 6.99% p.a.to 25.69% p.a.
- comparison rate
- 7.79% p.a.to 26.65% p.a.based on $30,000
over 5 years
- Upfront fee
- $575
- Monthly fee
- $0.00
- Exit fee
- $0.00
- Late payment fee
- $15.00
- Repayment options
- Weekly, Fortnightly, Monthly
- Early repayment penalty
- $0.00
- Minimum loan amount
- $2,000.00
- Maximum loan amount
- $50,000.00
- Minimum loan term
- 1 Year
- Maximum loan term
- 5 Years
- Security required
- Unsecured
- Other benefits
- Establishment fee is $275 for loans under $5,000.
- Other restrictions
- Establishment fee is added to the loan amount and interest is charged on the total amount.
Read our Mozo Review to learn more about the Harmoney Unsecured Personal Loan
^See information about the Mozo Experts Choice Personal Loans Awards
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