How do interest rate hikes affect personal loans?

By Maria Gil and Sophie Wong
Fact Checked
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Woman sitting down and looking at her phone to see her personal loan interest rate

Since May of 2022, the Reserve Bank of Australia has lifted the cash rate twelve times. While there hasn’t been a rate hike since June 2023, an increase is predicted at November’s meeting. 

While most of the chatter about the cash rate tends to be around home loans, did you know that it can also affect personal loans?

How the cash rate can impact interest rates for personal loans

The cash rate mirrors the market interest rate on ‘overnight’ funds, which is the money that banks lend to one another to meet their daily cash requirements.

It’s also used as a benchmark rate by lenders on their own financial products, including home loans, savings accounts and personal loans. 

Whenever the cash rate is changed by the Reserve Bank then, many activities in the economy start to see the effects, including consumer spending, general investment, employment and inflation. For example, a cash rate hike or series of hikes can have a notable impact, usually discouraging too much spending. 

Right now, we live in an economy where the cost of living keeps rising, which is why the RBA had increased the cash rate so aggressively in the first half of the year to curtail spending and therefore combat inflation. 

Lenders typically increase variable interest rates on their credit products - such as home loans - in line with the cash rate increasing. This usually makes it more difficult and expensive for people to borrow money. (Of course, if banks increase savings rates too, it can make it easier to save!) 

Personal loans don’t get much of a mention amid all this, though some rates have increased. In fact, according to Mozo’s database, the average unsecured personal loan interest rate is 10.47% at the time of writing. For comparison, it was 10.13% in November 2022 - that’s a 0.34% increase!

How to get an affordable personal loan

There are many factors to consider when looking for a personal loan, like the amount you’re looking to borrow, which features the loan might offer and certainly, its interest rate. 

Based on the interest charged, a shorter term loan will typically be more affordable than a longer loan. For instance, if you were looking to borrow $5,000 over a period of 3 years and at an interest rate of 10.47% p.a., you could be looking at paying a total of $848 in interest. But if you were to borrow at this same rate and amount over 7 years, you’ll have to pay about $2,075 in interest over the life of your loan - that’s about a $1,227 difference! Something to think about when shopping around for a personal loan.

It’s also worth considering any fees or terms and conditions of the personal loan contract. Research is the key!

To get started with personal loans, why not check out some of the top available options below, or browse Mozo's best personal loans hub to compare rates and fees further.

Personal loan comparisons on Mozo

Mozo may receive payment if you click products on our site. We don’t compare the entire market, but you can search our database of 236 personal loans.
Last updated 15 December 2024 Important disclosures and comparison rate warning*
  • Low Rate Personal Loan

    Excellent Credit, $5,000 - $75,000

    interest rate
    comparison rate
    Monthly repayment
    6.57% p.a.to 8.39% p.a.
    7.19% p.a.to 8.75% p.a.based on $30,000
    over 5 years

    Competitive low rates for borrowers with excellent credit on 1-7 year loans from $5,000 up to $75,000, plus free extra repayments. Winner of Mozo's Experts Choice Excellent Credit Unsecured Personal Loan 2024 and Excellent Credit Secured Personal Loan 2024 awards ^. Min. income of 25k after tax, to apply.

    Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.

    Compare
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    Details
  • Unsecured Personal Loan

    interest rate
    comparison rate
    Monthly repayment
    6.56% p.a.to 21.99% p.a.
    6.56% p.a.to 22.79% p.a.based on $30,000
    over 5 years

    Competitive fixed rates for borrowers on 1-7 year loans from $5,000 up to $50,000. $0 monthly fees and no early repayment fees to pay. Fast application process on the Revolut app. According to Revolut and subject to loan approval, you'll receive your money into your Revolut account straight away.

    Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.56% would cost $35,768.68 including fees.

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    Details
  • Unsecured Personal Loan

    Fixed

    interest rate
    comparison rate
    Monthly repayment
    6.75% p.a.to 26.95% p.a.
    6.75% p.a.to 26.95% p.a.based on $30,000
    over 5 years

    Borrow up to $50,000 unsecured. Perfect if you earn more than $22,100 p.a. and have good to excellent credit. Multi-year winner of Mozo’s Experts Choice Unsecured Personal Loan Award, 2021, 2022, 2023 & 2024^'

    Repayment terms from 2 years to 7 years. Representative example: a 5 year $30,000 loan at 6.75% would cost $35,430.23 including fees.

    Compare
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    Details
  • Debt Consolidation Loan

    $5,000-$75,000

    interest rate
    comparison rate
    Monthly repayment
    6.57% p.a.to 18.99% p.a.
    7.19% p.a.to 19.39% p.a.based on $30,000
    over 5 years

    Competitive fixed rates on loans up to $75,000 depending on your credit score. Zero monthly account keeping fees, no exit fees and no early repayment fees. Make weekly, fortnightly or monthly repayments, over 1 to 7 years managed entirely online, at any time. Fast and easy, 100% online application.

    Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.

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    Details
  • Home Improvement Loan

    Excellent Credit, $5,000 - $100,000

    interest rate
    comparison rate
    Monthly repayment
    6.57% p.a.to 8.39% p.a.
    7.19% p.a.to 8.75% p.a.based on $30,000
    over 5 years

    Give your home a refresh with the 2025 Mozo award-winning provider OMM. Borrow up to $100,000 for loan terms 1-7 years. Flexible weekly, fortnightly or monthly repayment options. No monthly, early repayment or exit fees. Fast 100% online application.

    Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,278.12 including fees.

    Compare
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    Details

* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

^See information about the Mozo Experts Choice Personal Loan Awards

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