How a short-term personal loan could save you money

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By Polly Fleeting ·

There are obvious perks to choosing a shorter personal loan term - it takes you less time to pay down your loan plus you pay less in interest over the life of your loan. 

But what if you could also receive a lower interest rate for choosing a shorter term? Well, the good news is, with some lenders you can.

Last week, personal loan lender SocietyOne introduced a tiered pricing system that does just that. Not only does it reward customers for their good credit history but also gives them an extra pat on the back for choosing a shorter term. 

On it’s Unsecured Personal Loan (Fixed), the lender offers a competitive 7.99% (9.25% comparison rate*) on it’s 5-year loan term. However, for customers that choose to borrow for 2 or 3 years, they offer a low 6.99% (9.00% comparison rate*)

Want to find out more about this loan? Read below!

SocietyOne Unsecured Personal Loan (Fixed)
  • Fixed rates from 6.99% (9.00% comparison rate*) for 2-3 year terms
  • No ongoing fees
  • Extra repayments allowed

Looking to borrow a bit of cash for a short period of time? The SocietyOne Unsecured Personal Loan (Fixed) could be the option you need. For customers borrowing for 2 or 3 years, rates start as low as 6.99% (9.00% comparison rate*), while those opting for a 5 year loan will receive a still competitive 7.99% (9.25% comparison rate*). Don’t like fees? Of course you don’t. Well, rest assured there are no monthly service exit or early repayment costs. Plus, you can make extra repayments whenever you want. Just keep in mind there is no redraw facility attached to this loan and there is a $336 upfront application fee to budget for.

So is this just another type of risk-based pricing? 

In recent years, a bunch of Aussie personal loan lenders have adopted risk-based pricing. It’s a tiered system of pricing whereby a lender offers an interest rate based on a customer’s credit rating.  

However, offering a rate based on a borrowing term is a lot less common. In fact, according to the Mozo database only three lenders have this system in place: SocietyOne, Teachers Mutual Bank and Queensland Country Bank.

Mozo Banking Expert, Peter Marshall explains that this type of tiered system is just another version of risk-based pricing. 

“In this instance, lenders are looking at customers opting to borrow for longer terms as higher-risk,” he said. 

“This is possibly based on their own experience. These lenders may have found that people with longer loans are more likely to have problems over the life of the loan.”  

He also said that, while it’s hard to tell he wouldn’t be surprised to see other lenders adopt this sort of pricing mode. However, it may take time. 

Do these tiered rates only benefit customers on a shorter term?  


Marshall says that like pricing based on credit history, interest rates offered on different loan terms don’t only benefit those on one side of the fence.

“It’s a win win for borrowers that opt for a shorter loan term as they will not only pay off their loan soon but receive a lower rate,” he explained. 

“On the flip side, if you are a borrower that can’t pay off your loan in say three years, you may receive a higher rate, but at least there is still the option to borrow money. Some lenders may not give you the ability to take out a longer loan at all.” 

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Polly Fleeting
Money writer

Polly Fleeting is a personal finance writer here at Mozo, specialising in loans and credit cards. Her work is aimed at helping people find ways to make smart product choices, reduce debt and get more for their hard-earned dollars. Polly has a degree in Journalism from the University of Technology, Sydney.