Personal Loans Report 2020: How prices have changed and where to find the best deal

Quick facts from our report:

• A borrower in 2020 could save an average of $104 on a $10,000 secured personal loan over three years compared to in 2019.
• The average cost on a $10,000 unsecured personal loan in 2020 only differed slightly to 2019 however.
• However, the cheapest unsecured personal loan could save borrowers $1,066 on a $10,000 loan paid back over three years. 
• While the cheapest secured personal loan could save borrowers $779 on a $10,000 loan paid back over three years. 
• Aussies could also save $3,391 on a $30,000 new car loan by shopping around and picking the cheapest option.

The personal loans landscape in 2020

The idea of borrowing money on credit has been around since the earliest marketplaces. Indeed, money lending can be traced back as far as the Roman Empire and ancient Greece. What has changed over time is how loans work. Modern day lenders are subject to many more regulations, and loans can be firmly categorised as either secured or unsecured. 

Plus with the introduction of Comprehensive Credit Reporting (CCR) and the phasing in of Open Banking in recent years, your personal story is crucial to your personal loan. In other words, the amount you need to borrow, together with your credit history, will help determine what loan you choose. 

In the following report, we’ve broken down the current marketplace, looking at the best personal loans in 2020 compared to a year ago. We also share tips on improving your credit score and how to save money on your loan overall.

2019 vs 2020: How personal loans costs stack up

To better understand how personal loans have changed in the past year and see what type of loans look more appealing, we crunched the numbers. 

Firstly, a secured personal loan for $10,000 paid over three years would have set a borrower back $11,213 on average in 2019*. But in 2020, a borrower would be expected to pay $11,127 on the same loan - a difference of $104, as per Mozo analysis. 

Mozo Banking Expert, Peter Marshall says this notable price difference with secured personal loans isn’t uncommon because they are less risky [for the lender] than unsecured loans. This means that secured loan interest rates are typically lower than on unsecured loans, he says. Lenders are more likely to drop rates on secured loans as well.

“If you default on a secured loan the lender can take possession of the item you put up as security - often your car - and sell it to cover any losses,” says Marshall. “However, the lender has no such recourse on an unsecured loan if you can't complete your repayments.” 

This helps explain why in a similar example, an unsecured loan shows little change in cost over the same term: the average on a $10,000 unsecured personal loan last year* totalled $11,488, and in 2020 that figure went up slightly to $11,492, as per Mozo’s analysis.

What do you need your personal loan for?

Knowing which personal loan to choose depends on what you intend to use the loan for.  

For instance, if you’re taking out a loan to purchase a car, you might be more inclined to choose a secured personal loan, as the car you’re buying can be used as security. 

Here are a few to consider: In the 2021 Mozo Experts Choice Awards, Credit Union SA, Hume Bank and Illawarra Credit Union came out on top in the Best Secured Car Loan category - meaning these three lenders offer the cheapest secured loan options in the Mozo database. 

On the other hand, if you’re looking to use a personal loan to renovate your home and don’t like the idea of putting up an asset as collateral, you might want an unsecured personal loan. 

While having ‘no security’ might sound like an attractive option, Marshall warns that these products can be less competitive on price, even when broader rate cuts are made.  

 “On unsecured loans interest rates stay pretty much unchanged regardless of what interest rates on other products are doing. In that way, they are more like a credit card,” he says. 

Among this year’s unsecured personal loan winners in Mozo’s awards were Australian Military Bank, MOVE Bank, NOW Finance, OurMoneyMarket, Police Bank and Sydney Mutual Bank. However, there were also some familiar names like Endeavour Mutual Bank, G&C Mutual Bank and ING, who were a part of last year’s winners list and obviously are worth considering, too.

A good deal? It pays to be picky when borrowing money

Doing some extra research is essential to saving on a loan. For example, comparing products on price, repayment flexibility, and fees and charges are all good places to start. To set you off on the right foot, our Mozo experts crunched the numbers on how much Aussies could save by choosing the cheapest unsecured and secured personal loan options. 

For example, by opting for the cheapest available unsecured personal loan, you could save $1,066 on a $10,000 loan paid back over three years. On the other hand, selecting the cheapest secured personal loan product could see you pocket $779 on a $10,000 loan paid back over three years. 

Similarly, Aussies could save $3,391 on a $30,000 new car loan by shopping around and picking the cheapest option available, as per Mozo analysis. Clearly it pays to look around, research and compare.

Why your credit score is crucial to your personal loan deal

Borrowing money is a common practise among many households, but the introduction of CCR (comprehensive credit reporting) means that having a pristine credit score has never been more important.

It’s in your best interest to make sure your credit score is in the ‘green’, especially if you have your mind set on picking up a personal loan. 

A credit score is a system which tells a bank or lender how reliable you are to lend to. It’s a number between 0-1200 and can either be recorded as ‘excellent’, ‘very good’, ‘good’, ‘average’ and ‘below average’.

Some of the factors that make up your credit score include:

• The dates you opened accounts and how long they were open for
• Your current credit limit and other lines of credit you might have, like a mortgage or credit card
• Any overdue payments that exceed 60 days or more.

What does all this have to do with a personal loan interest rate? Well, as we mentioned earlier, thanks to Open Banking Aussies now have the opportunity to secure themselves a top rate if they can prove to a lender they’re good with managing money. 

Essentially the better your credit score, the more likely you are to receive a lower personal loan interest rate - saving you big bucks.

Tips for dumping your debt

Of course, besides a healthy credit score, being wise about which loan you pick and how you pay it off is important.

A longer loan term loan might give you some flexibility, for example. But if you want to pay less in the long run, getting rid of your debt faster is ideal.

Not sure where to start? Here are Mozo’s top tips for dumping your debt faster:

1. Ongoing service fees add up

While avoiding upfront costs, like a steep application or establishment fee is a good idea, ongoing service fees can also really add up. For instance, a $20 monthly service fee may not seem like a lot on its own, but over a five year payback period it could add up to around $1,200. The good news is there are plenty of personal loans to choose from that don’t charge monthly service fees.

2. Budget for extra repayments

A number of personal loans give you the option to make extra repayments. So, rather than simply paying the minimum repayment amount, you have the option to pay more off your loan. That way you could potentially pay off your loan sooner. Just make sure whatever extra repayments you make are within your budget. A lot of loans do often have a redraw facility, but there is also usually a fee for this service.

3. Watch out for interest rates

Another thing to think about is the interest rate. Interest rates for personal loans can vary dramatically and a high rate could really increase your repayments. It’s also important to remember that the interest rate advertised is often for customers with an excellent credit rating. So, make sure you read the small print to see how high it could go.

4. Flexible payments can speed things up

If it works for your budget, then flexible repayments are a good option to have. That’s because the more frequent your repayments, the more you will pay over the course of one year and the sooner you could be rid of your debt.

For instance, with a $500 monthly repayment, you would make around $6,000 worth of principal repayments in one year. However, if you repay $250 fortnightly then you would pay back around $6,500 in the same amount of time. Namely because there are 26 fortnights in one year.

Head to Mozo’s compare personal loans page to see what products are on offer in Australia right now. Or, if you want to read more about Mozo’s awards, check out the Mozo Experts Choice Awards hub.

*Average cost of 2019 Mozo’s Experts Choice Award winners

This report was a collaboration between JP Pelosi, Tara McCabe and Ceyda Erem.