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Personal loan interest rate ranges

What are personal loan interest rate ranges and how is your rate calculated?

If you’re shopping around for a personal loan, you may have noticed that some lenders advertise their loans with interest rate ranges rather than a set interest rate. This means that if you apply and get approved for a personal loan, you’ll receive a rate somewhere in that range.

So, why do lenders use interest rate ranges and how can you qualify for the lowest possible rate? Let’s take a closer look.

What are interest rate ranges?

A personal loan interest rate range sets out the minimum and maximum rates you could get on a loan from a specific lender.

For example, if Lender X advertises a personal loan interest rate range of 7.5% to 20.15%, if you apply and are approved for a personal loan from this lender, the interest rate that applies to your loan could be anywhere within the range quoted.

However, the rate you get will be determined by a number of factors including your credit score, your overall financial situation and the loan repayment terms.

Does every lender have an interest rate range?

No. While some lenders use interest rate ranges, others have a set rate. If a loan is promoted with a set rate, everyone who applies and is approved for that loan will get the rate quoted.

Just like loans with interest rate ranges, personal loans with set rates are clearly advertised as such. This allows you to accurately compare loans with the same type of interest rate structure.

Why do lenders set interest rate ranges with their loans?

There are a number of reasons why some lenders offer interest rate ranges for their personal loans, such as:

  • They can tailor the loan to suit the borrower. Rate ranges give lenders the flexibility they need to tailor their personal loans to meet the unique financial needs and repayment terms of a wide variety of borrowers.
  • They can approve a wider range of borrowers. By offering a set rate, lenders limit the number of borrowers that will meet the necessary lending criteria and be able to afford to repay the loan. But if they introduce an interest rate range, they can make their loan accessible to a much wider range of borrowers with varying financial circumstances.
  • They can set the interest rate as per the level of risk. Different borrowers come with different levels of risk for lenders – for example, a high-income earner with a perfect credit history is a much less risky lending prospect than someone on a lower income with a low credit score. Interest rate ranges allow lenders to set a rate that reflects the risk profile of each individual.

How is the interest rate determined?

The difference between the minimum and maximum figures in an interest rate range can be quite large, so how does the lender determine the exact rate that will apply to you? Well, there are a number of factors that affect how your rate is calculated, and the process will vary depending on the lender you choose.

Some lenders determine your rate based on your credit score or credit history, while others calculate rates according to your risk profile. This means a lender may consider the following factors when deciding which rate in their personal loan interest rate range will be right for you:

  • Your credit score. Your credit score is a figure that represents your credit worthiness, and lenders use it to decide whether or not they should offer you a loan. The higher your credit score, the more likely you will be to make on-time repayments – which can help you qualify for a lower rate.
  • Your credit history. Your credit score is based on an analysis of the information in your credit file, and many lenders will also consider your file when determining your personal loan interest rate. Black marks in your file, such as missed repayments or debt agreements, could cause the lender to offer you a higher rate.
  • Your financial situation. You’ll also need to provide details of your financial circumstances when you apply for a personal loan, including details of your income and employment, your assets and liabilities and your ability to save money and make on-time repayments. The lender will use this information to determine your capacity to repay the money you borrow, and therefore work out your interest rate.
  • The loan repayment terms. The lender will also look at the specifics of your loan, such as the loan term and the frequency of your repayments, when deciding where to set your interest rate.

How do I know what rate I will receive?

If you apply for a personal loan advertised with an interest rate range, you won’t know for certain what rate you will receive. This can be frustrating for borrowers who prefer the peace of mind that comes with certainty, but there are a few simple steps you can take to get a rough idea of the rate you’ll be given.

Checking your credit score is a great place to start, as a good credit score will help you receive a better rate. By taking steps to improve your score, such as consolidating debt and disputing incorrect listings on your credit file, you could soon be able to access a lower interest rate.

It’s also important to read the fine print for more information on how each lender calculates their rates. Once you know the process involved and the factors to be considered, you’ll be able to formulate a clearer picture of the rate you may receive.

Finally, many peer-to-peer lenders can give you an interest rate estimate for your desired personal loan, and you can apply for an estimate without affecting your credit score. This is a very useful tool to help you figure out where you sit on the lender’s personal loan interest rate range.

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You'll receive a fixed rate between 9.5% p.a. and 15.99% p.a. based on your risk profile
An unsecured personal loan with a tailored, fixed rate where you can make additional and early repayments without penalty.

Citi Personal Loan Plus

You'll receive a variable rate between 8.99% p.a. and 17.99% p.a. (9.96% p.a. to 18.91% p.a. comparison rate) based on your risk profile
A credit limit up to $75,000 that you can continue to draw down over terms up to 5 years.

SocietyOne Unsecured Personal Loan

You'll receive a fixed rate between 7.5% p.a. and 19.99% p.a. based on your risk profile
A loan from $5,000 to use for a range of purposes. Benefit from no ongoing fees and no early repayment fee.

Latitude Personal Loan (Unsecured)

You'll receive a fixed rate between 13.99% p.a. and 29.99% p.a. based on your risk profile
Apply for what you need from $3,000 and use it for a range of purposes. Flexible repayments options.

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