Variable rate personal loans

By Mozo ·

You click open your savings account only to discover there’s not quite enough money sitting there to fund your much needed new set of wheels. There’s no need to turn sour as there’s a personal loan out there for you, one which will help you drive away with that dream car. 

A personal loan is a means of accessing finance through a provider such as a bank, credit union or peer to peer lender. You can take out a personal loan for just about anything including a wedding, holiday, home renovations or medical expenses. Depending on your purpose for taking out a personal loan and your financial situation will help determine if you go with a variable or fixed rate. This guide goes into the nuts and bolts of a variable rate personal loan.

Personal Loan Comparison Table - page last updated September 26, 2020

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  • 8.00% p.a.

    8.21% p.a.based on $30,000
    over 5 years

    Terms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 8.00% would cost $36,647.51 including fees.

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  • 5.75% p.a.to 21.99% p.a.

    6.47% p.a.to 25.11% p.a.based on $30,000
    over 5 years

    Terms from 1 to 7 years. Representative example: a 5 year $30,000 loan at 5.75% would cost $35,190.18 including fees.

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  • Hot DealZERO Upfront fee until 30th September 2020^

    6.95% p.a.to 19.99% p.a.

    6.95% p.a.to 19.99% p.a.based on $30,000
    over 5 years

    Terms from 1 to 5 years. Representative example: a 5 year $30,000 loan at 6.95% would cost $35,599.71 including fees.

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  • 7.59% p.a.to 8.89% p.a.

    12.24% p.a.to 13.91% p.a.based on $30,000
    over 5 years

    Terms from 1 to 5 years. Representative example: a 5 year $30,000 loan at 7.59% would cost $36,844.34 including fees.

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Start comparing loans below. 

What’s a variable rate loan?

A variable rate means the interest rate on the money you are borrowing can change at any time during the term of the loan. So when market interest rates change so do your repayments on the loan. This fluctuating interest rate could work in your favour or it may not.

Pros of a variable interest rate

  • There are more options and flexibility with a variable interest rate
  • You won’t be charged for making extra repayments and paying off your loan early
  • When market interest rates drop so do your repayments
  • Fees and charges are usually lower than with a fixed interest rate

Cons of a variable interest rate

  • There’s uncertainty as to how much your repayments will be due to fluctuating market rates
  • It’s harder to budget with a variable interest rate
  • When interest rates rise, so do your repayments therefore you may pay more in the long run

Click here to read some thoughts and opinions on personal loans from the Mozo community.

Secured vs Unsecured loans

When taking out a personal loan you have to choose between a secured or unsecured loan. A secured loan requires you to put up an asset as security in order to borrow money from the lender. You can offer your house, car or even jewellery as collateral but keep in mind if you fail to make repayments, the lender can take possession of your asset. With a secured loan, the lender will offer you more competitive rates and fees; you can also borrow more money over a longer period of time. Check out some great deals on secured loans.

An unsecured loan does not require you to put up an asset as security against the loan but you will need to have secure employment and a good credit rating. An unsecured loan is ideal for those people wanting to borrow a small amount of money over a short period of time. Click the link to compare and save on unsecured loans.

Fixed rate loans

If you don’t deal well with change and uncertainty then a fixed rate personal loan may suit you better. The interest rate on a fixed rate personal loan will remain the same for the entirety of the term.

Pros of fixed rate loans

  • Repayments will stay the same throughout the loan term, making budgeting a whole lot easier
  • You don’t need to stress if market interest rates rise, as your loan won’t be affected

Cons of fixed rate loans

  • Rates and fees are generally higher than a variable interest rate personal loan
  • When market rates fall, you miss out on the low rates
  • Charges usually apply if you make extra repayments to pay off the loan quicker

Features to look for in a variable rate loan:

Competitive rate: Shop around and find a lender who is going to offer you a competitive low variable interest rate, every cent counts.

Comparison rate: Make sure you also look at the comparison rate, the ‘true cost’; this figure includes fees and charges on the loan, so it helps you calculate exactly what your repayments will be.

Extra repayments: Plenty of variable rate loans will allow you to make advanced and additional repayments without a charge, so you can pay off your debt faster.

Low fees: Keep an eye out for loans that have low application, ongoing and late fees. These administrative fees are usually lower with a variable rate loan.

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How much can I borrow and for how long?

How much a provider is willing to lend you will depend entirely on your financial situation and what you can afford in repayments. Also, how much you would like to borrow may not necessarily be the same amount you can afford! An important Mozo tip - only borrow as much as you can manage in repayments.

A secured personal loan allows you to borrow a larger sum of money starting at $5000 all the way up to $100,000. You can take out a secured loan from 1 to up to 15 years. If you only want to borrow a smaller amount look into an unsecured loan, amounts start from around $5000 up to $30,000. An unsecured loan usually ranges from 1 to 7 years.

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Loan Repayments

Loan repayments can be made weekly, fortnightly, monthly or an agreed date. Exactly how much each repayment will be depends on the following:

  • The full amount of your loan
  • The loan term
  • Interest rates
  • Fees

Use the Mozo personal loansrepayments calculator to do the maths for you.

*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. WARNING: 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.

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