Fixed rate personal loans

Ever wondered what difference choosing between a variable and fixed rate personal loan really makes? Well, if you’re a little more cautious or have trouble adjusting to change, a fixed rate loan could just be a lifesaver. 

A fixed rate means the interest rate will remain the same throughout the loan term. No matter what’s happening in the market at large, rise or fall, your loan will not be affected. This could be for better or worse with rising and falling rates, but regardless, you have the security of knowing exactly what your repayments will be for the life of the loan.

If a fixed rate sounds appealing, you can start comparing fixed rate loans below:

Imagine this: You’ve been putting in the hard yards at work, doing overtime to earn extra cash for that big holiday you’ve been dreaming of. Unfortunately, your savings aren’t quite going to cut it, and you’re wary of the uncapped spending potential that comes with a credit card. Instead, after weighing up your options between a travel credit card and a holiday loan, you decide to go with a personal loan. You’ve narrowed down your options, but now comes one choice you’ve never really paid much attention to: fixed or variable?

When it comes to opting for a fixed rate loan, there are ups and downs depending on what you’re looking for and your personal financial situation.

If we revisit our initial scenario, think of it like this: which is more important to you? The flexibility and lower fees of a variable rate loan, or the predictability and security of a fixed rate loan? 

If you don’t think you’re likely to have much extra money on hand to make extra repayments (think inheritances or bonuses at work), you’re probably guessing won’t be able to pay off your loan early. You might not need the extra flexibility allowed by many variable loans. In that case, it might be more valuable to you to lock in a rate that will allow you to budget month to month and protect you from any instability in the market.

To start comparing personal loans, use our personal loans comparison calculator.

Once you’ve decided on a fixed loan, choosing whether or not to secure your loan is another complicated question. Should you secure your loan? The answer comes down largely to another weighing of pros and cons and your financial situation. It will also depend on what you are looking to borrow.

For larger sums of money, you may only be able to borrow using collateral to secure the loan. For amounts of money under $50,000, you may have more options with both secured and unsecured loans. If you are looking to borrow money for a particular asset - think a car, or a boat - most of your options will be secured loans.

While fixed rate loans tend to offer higher interest rates than variable rate loans, this dynamic is even more noticeable with secured and unsecured loans. A secured fixed rate loan will likely offer you a lower rate than an unsecured variable rate loan (though obviously this depends on the lender and the features offered by the loans), because security makes the loan much less of a risky proposition to a lender.

We’ve written about the pros and cons of fixed rate loans, but the reality is that there are other options. You might see us often talk about fixed and variable rate loans as two sides of the same coin, and that is because variable rate personal loans are your other option when it comes to taking out a personal loan.

With a variable rate personal loan the interest rate will change during the term of the loan according to the rise and fall of market interest rates. 

This can be a great thing - when rates are falling, lenders may pass through those rates, and you could see your interest rate falling. This would mean lower monthly repayments - score! However, it can also be a curse when rates are climbing. Higher interest rates mean higher repayments, and banks tend to be fast to pass these through to their customers.

With a fixed rate personal loan, you are making a pretty major commitment, so it’s important to pick a loan with features that suit your life and circumstances. Since you are opting for a more predictable loan, the features may lack the same flexibility that they’ll have in a variable rate loan.

Here are some features to look for in a fixed rate loan. You may not be able to find a loan with all of them, so look to the ones that are most important to you and your wallet.

• Flexible repayments - The ability to make repayments to fit your pay schedule or on a fortnightly basis instead of monthly can be super helpful in organising your finances.

• Extra repayments - Making extra repayments can help you pay off your loan quicker, but these may be capped or come with an extra cost on fixed rate personal loans.

• Redraw facility - Once you've paid off a portion of your loan, you can draw that money back out again. This feature may be handy to have when an unexpected bill or health issue pops up.

• Speed - While loans will always take a different amount of time, certain loans will offer an easier application process or faster funding.

The term of the loan is how long you have to pay it back, and this is no different with fixed rate loans. The term will depend on the reason for your loan, and on your financial circumstances. Personal loan terms usually range from 1 to 10 years. The longer the term of the loan, the more you will pay in interest and fees over time. 

The advantage of locking in a fixed rate personal loan is knowing exactly what your repayments will be. Setting up your repayments to coincide with your work pay is a good idea, helping you to plan your budget appropriately. For help working out what your repayments will be and how much interest you will pay, use the Mozo personal loan repayment calculator.

Most providers will offer fixed rate personal loans. Some of these include:

• Big banks: You may be able to get a fixed rate loan from one of Australia’s big 4 banks - Commonwealth Bank, ANZ, NAB, and Westpac.

• Other banks: Smaller banks may also offer fixed rate personal loans. Some of these are still major contenders with the big banks, especially if they are a dominant bank in a certain state. These include Bank of Queensland, Suncorp, Bankwest, Bendigo Bank, and more.

• Credit unions: These are non-profit financial institutions with fees and rates usually lower than the big banks.

• Online lenders: Many online-only lenders offer lower fees and interest rates as they do not have any costs associated with brick and mortar branches or offices. Funding and application is often quicker with online lenders and peer-to-peer lenders.

• Peer to peer lenders: This is a way for investors to connect with borrowers. Their loans are usually unsecured with fixed interest rates and low fees.

Each type of lender will have its own pros and cons, so it’s important to think about whether you’re prioritising speed of funding or access to a physical branch.

You'll need a few things in order to apply for a fixed rate personal loan. These include:

• Proof of identification: Some lenders require two forms of ID e.g. drivers licence, passport, birth certificate or Medicare card. You’ll need to prove that you’re over 18, and usually, that you’re an Australian citizen or permanent resident.

• Proof of income: You will need to provide several of your most recent payslips. If you’re self-employed, some lenders will ask for the last two years worth of tax returns or financial statements and your last Tax Assessment Notice. If you’re unemployed or on a low-income, loans can be trickier, but may still be possible. Find out more about loan eligibility.

• Financial details: You’ll have to provide documents of any assets, debts, credit cards and savings you might have.

To start comparing personal loans, the most important thing is to get an idea of which fixed rate loans are available and to do your research on what they entail. 

You can then use Mozo’s personal loan comparison calculator to work out which fixed rate loan is better suited to your circumstances.

Fixed rates aren’t for you? Get the picture on variable rate personal loans. In the meantime, figure out easy personal loans, or read up on Mozo’s best personal loans.