Cheap personal loans

How to get a cheap personal loan

For most borrowers, the interest rate is the most important part of a personal loan. While it plays a big part in the cost of the loan, it's not the only thing you should look at.

Interest rate. A high interest rate makes the loan expensive. A lower rate makes it cheaper.

Fees. If you only look at the interest rate you might miss the other costs that come with it. Check for application fees and monthly account fees.

Loan term. Personal loan terms usually range from 1-7 years. If you choose a longer term you'll have lower monthly repayments but you'll end up paying more in interest over the loan. A shorter loan term will have higher monthly repayments but you'll pay much less in interest over the life of the loan.

Extra repayments. If you make extra repayments towards your loan balance you'll have a cheaper loan overall as you'll reduce the amount of interest you'll pay over the life of the loan.

How a lower interest rate makes a cheaper personal loan

Your personal loan's interest rate determines how much interest is charged on your repayments. Here are 3 otherwise identical loans with different interest rates.

In these examples the lowest rate loan works out to be $1,607 cheaper than the highest rate one.

How fees can make a cheap personal loan more expensive

Some lenders charge a monthly fee just for keeping the loan account open. And there's often an application or upfront fee that can cost hundreds of dollars. Fees can be set dollar amounts or percentages of your loan amount.

Here's an example:

• Your lender charges an application fee that's 1.5% of your loan amount.
• You borrow $10,000.
• Your application fee is $150.

Here are 2 personal loans with the same loan term and loan amount.

Loan 1 has a lower rate but with a $20 monthly fee. Loan 2 has the higher rate but no monthly fee.

The higher rate loan ends up being $719 cheaper over 5 years. All because of that little monthly fee.

How the length of your loan can change the cost

For some, low monthly repayments are what makes a personal loan cheap. For others, keeping the overall cost of the loan down is what makes it cheap. It's hard to do both.

The length of the loan affects the cost of the loan in 2 ways:

• A shorter loan term = less interest charged, but higher monthly repayments.
• A longer loan term = more interest charged over time, but cheaper monthly repayments.

A shorter loan term is technically a cheaper loan overall because you pay much less interest.

Every borrower has to find the right balance between the monthly repayment size and the overall life of the loan.

Here are 3 examples, using identical rates and loan amounts but different terms:

Loan 3 has by far the cheapest monthly repayments. But by taking 7 years to repay the loan you pay more than $5,000 in interest. Whereas loan 1's 3-year term means you pay just over $2,000 in interest.

How do I get a lower interest rate?

The lowest personal loan rates go to borrowers who have excellent credit scores. You'll also need to have a steady income and meet all the borrowing requirements.

But every borrower can still find a lower rate, whether their credit is excellent or not. The main thing is to compare rates from many lenders and make sure you're getting a good deal.

4 tips to finding the cheapest personal loan

1. Improve your credit score. A better credit score means you can get a lower interest rate from many lenders who use risk-based pricing. Check out all the ways you can improve your credit score.
2. Compare widely. Check out personal loans from big banks, small banks and online lenders to make sure you're getting a loan that's genuinely cheaper than the average.
3. Use a guarantor. If you have bad credit or are struggling to get a loan approved, having someone support your application can help you get approved and get a cheaper loan. The catch? If you can't repay the loan your guarantor is on the hook for it.
4. Find the right type of personal loan. There are different personal loan types that suit different borrowers, and some are cheaper than others. A secured loan will have a lower rate than an unsecured loan from the same lender, for example. A car loan with balloon payments might look very cheap at first but the final payment could make it very expensive.

Expert insight: Get a quote before you apply

"It's important to remember that sometimes the lowest advertised interest rate isn't the cheapest option for you. Once you factor in establishment fees and other charges, the loan can quickly become more expensive. That's why the comparison rate exists; it bundles most of these fees into a single figure, giving you a fairer representation of the true cost of the loan.

The advertised rate may also be the lowest rate available, and not necessarily the rate you'll be offered. Your individual credit score and circumstances play a big role in setting your interest rate.

A smart approach is to get loan quotes so you can see your interest rate and repayments before you apply."

Jonathan Wu

Chief operating officer & chief product officer, MONEYME

Are secured or unsecured personal loans cheaper?

• Secured personal loans. Rates for secured loans can range from 5% p.a. to 29.99% p.a. It's likely the rate you're offered will differ based on your risk profile.
• Unsecured personal loans. Rates for unsecured personal loans can range from 8% p.a. to 29.99% p.a. depending on the lender.

How to make your personal loan repayments cheaper

Once you've found a suitable personal loan you do have a few ways to make the repayments cheaper regardless of how high or low the interest rate is.

• Adjust the loan term

The length of the loan affects how cheap it is month-to-month and overall in terms of the interest costs. Play around with the loan term until you find the right balance.

• Make extra repayments

Most personal loans let you make extra repayments. Putting aside even just a little extra each month to pay the loan down reduces the interest you get charged.

Just check that your lender doesn't charge a fee for making extra repayments.

• Borrow less

It sounds obvious but a smaller loan size works out cheaper than a larger one. If you're able to reduce your borrowing amount you can end up saving yourself from money.

Why compare personal loans with Finder?

Addicted to details. We know taking out a personal loan is something you'll be hooked up with for a while. That's why we put hours into research for this guide (and still do at least once a month)

Rates obsessed. Lenders come in all shapes and sizes, that's why we don't just track the big banks, but all the digi folk too. Pretty much everyone but your parents to be honest.

Cash for whatever you need. Lending rates verified from 180+ products day and night. Whether you're buying a car, rennovating your home or heck just ready to let loose with the spending - we got you.

FAQs

• What is the cheapest way to borrow money?

  Personal loans are typically a cheaper way to borrow money than using a credit card. Cards have much higher interest rates.

  Secured car loans for new vehicles are the cheapest form of personal loan but these are only for people buying cars. And even then you'll need to be buying a car that meets the lender's criteria.

• Which bank has the cheapest loans?

  There's no easy answer to this question. Banks and other lenders are competing for your business and often set rates quite close to each other.

  The best way to find the bank with the cheapest loan is to compare widely and look at not only the rates banks are charging but the fees as well.

• Are online loans cheap?

  Online lenders have lower operating costs than banks and often charge the market's lowest rates. But you will need a good or excellent credit score to unlock the cheapest loans.

  And these days even the biggest banks offer some very competitive personal loan rates, so you really do need to compare widely.

• Can I get a cheap small loan?

  Most lenders set their minimum personal loan size at above $2,000. Borrowers looking for a cheap loan below $2,000 need to be careful. Loans for small amounts put you in the territory of payday loans.

  By law payday lenders can't charge interest. Instead they charge fees based on the amount you borrow. It's quick and easy to get a payday loan but you end up paying quite a lot in fees for a relatively small loan amount.

• What if I find a cheaper personal loan?

  f you find a cheaper personal loan on the market you can show this to your preferred bank or lender and see if it will match the rate. It never hurts to ask.

  If you already have a personal loan but it's not as cheap as you'd like, you can refinance to a new personal loan. This means applying for a new personal loan product and discharging the old loan.

To make sure you get accurate and helpful information, this guide has been edited by Richard Whitten as part of our fact-checking process.

Written by

Rebecca Pike

Editor, Money

Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines. See full bio

Rebecca's expertise

Rebecca has written 300 Finder guides across topics including:

• Home loans
• Personal Loans
• Car Loans
• Cost of living
• Budgeting