Fixed rate personal loans have a set rate for the duration of a loan term. Because of this, loans with a fixed rate allow you to accurately predict your future repayments. This type of loan comes with a lot of benefits, such as being able to structure your budget and never being hit with a higher repayment. However, there are also a few added restrictions to fixed rate loans when compared to their variable rate counterpart. We break these down for you in this guide, to help you decide if a fixed rate loan is right for you.
Harmoney Unsecured Personal Loan
Harmoney Unsecured Personal Loan
Borrow up to $70,000
3 and 5 years terms
No hidden fees
100% confidential application
Harmoney Unsecured Personal Loan
An unsecured personal loan up to $70,000. You'll receive a tailored interest rate between 6.99% p.a. and 28.69% p.a. based on your risk profile.
Interest rate from: 6.99% p.a.
Comparison rate: 7.69% p.a.
Interest rate type: Fixed
Application fee: $500 ($200 for loans of below $5,000)
Fixed rate personal loans are a standard form of personal loan in which the rate will not change during the loan term. Variable rate personal loans, on the other hand, have rates which fluctuate with market changes. With a fixed rate loan, you can usually choose a loan term of between one and five years.
Having your repayments remain fixed for the life of a loan is a big benefit, but it's important to understand fixed rate personal loans generally come with restrictions. These mostly have to do with repayments. For example, you may not be able to make additional repayments or you may only be able to make repayments up to a set cap. You may also not be able to repay the loan early. However, not all fixed rate personal loans come with these restrictions - and not all fixed rate loans are created equal - which makes it important to compare your options.
What features come with fixed rate personal loans?
Fixed rate personal loans come with a number of benefits, but also a few restrictions. Here are the typical features you can expect:
Lenders offer varying loan terms depending on a number of factors. These include whether the loan is secured or unsecured, and the circumstances of the borrower. However, you can usually expect a term of between one and five years, with some lenders extending up to seven years. With some loans, part of this term may be fixed and the rest variable.
The interest rate is fixed and that means your repayments stay the same for the entirety of your loan term. This will be the case regardless of what happens to rates in the market.
Up-front and ongoing fees
Look out for fees for establishing the loan or ongoing monthly fees. These aren't standard for fixed rate personal loans, so remember to compare what's available.
Early payment penalties
Fixed rate personal loans may come with fees for paying your loan back early or for making additional repayments. These differ between lenders, but generally, because you are considering ending the fixed term early, you will usually be expected to pay a fee. This is sometimes referred to as a "break fee"*. You might also find some lenders only charge fees if you repay your loan within a certain period, for example, in the first year.
*What's a break fee?
A break fee is a type of compensation for the breaking of a deal or contract. In finance, a break fee is a fee that's paid by the borrower to the lender for either cancelling the contract early or switching to another loan type. Depending on the borrower, break fees may only be payable if the market interest rate is lower than your fixed rate.
This could mean that the amount payable is the difference in the amount of interest that will be lost due to the fixed term being broken, and the projected interest that can be earned by re-lending the funds at the new offered rate for the remaining contracted fixed-term. Other lenders may have a set break-fee.
Should you get a fixed rate or variable rate personal loan?
Personal loans that come with a fixed interest rate can be suitable to help you finance a range of different purposes:
Fixed rate personal loans
Your repayments remain the same each month, making it easy to budget
Some loans still come with repayment flexibility, such as allowing early and additional repayments
Many loans come with repayment restrictions such as penalties for early repayments
Loan terms generally only extend up to five years
Variable rate personal loans
Flexible repayments such as no penalty for early and extra repayments
Loan teams can extend up to seven years
Your rate may change over your loan term
Loan terms generally only extend up to five years
Variable or fixed rate? The questions to ask
Do I want flexibility with my repayments?
Generally speaking, variable rate loans offer more flexible repayments. This includes the ability to make extra repayments, repay the loan early and access a redraw facility. Some fixed rate personal loans may also offer these features but not all will. If you want features such as the ability to make early repayments, make sure to find a loan that offers this without charging a penalty.
Which type of loan offers me a lower rate?
Both fixed rate and variable rate personal loans can offer competitive rates, so it pays to compare both to find a good deal. Also look out for risk-based personal loans if you have a good credit history. These loans reward good credit borrowers with better rates.
Does the loan type offer me the features I need?
While fixed rate loans generally come with certain features, there are no hard and fast rules that lenders need to play by. This means that you could find a loan offering all of the features you want and it could have a fixed or variable interest rate. So, decide what features you want from your personal loan; whether it be repayment flexibility, a long loan term or a redraw facility, and find a loan that offers what you want.
How do I compare fixed rate personal loans?
Keep the following in mind when comparing fixed rate personal loan options:
Is the loan secured or unsecured?
If you're looking to buy a vehicle or own a property you can consider a secured fixed rate loan and use the asset you own, or are looking to buy, as a guarantee. Secured loans usually come with lower interest than their unsecured counterparts because they're less risky for lenders. But be aware that if you fail to make your repayments, the lender is able to repossess your asset and sell it to recoup its losses.
What's the interest rate?
Comparing interest rates is important as this is the rate you will be paying for the whole term of your loan. Compare the loan against similar offerings to get an idea if it's competitive. Remember to check the comparison rate as well as the advertised interest rate. This is because comparison rates take into consideration additional fees and charges, and are therefore a more accurate representation of what you will have to pay.
How long is the loan term?
This ultimately comes down to what you need. You can expect most lenders to offer repayment terms of between one and five years for fixed rate loans, but some lenders extend their offerings up to seven years. The longer the loan term, the lower your repayments - but ultimately you will end up paying more over the life of the loan with a longer loan term.
What fees and penalties will I be charged?
Look out for up-front charges such as establishment fees, ongoing costs in the form of monthly or annual fees, and what you will be charged if you repay the loan early or make extra repayments. Other costs to watch out for include penalties for late payments.
Can I make extra repayments with a fixed rate personal loan?
As mentioned above, you can generally still make additional repayments on a fixed rate personal loan, but may be charged a fee for doing so. However, some fixed rate loans will allow you to make extra payments, or even pay off your loan early, without penalty.
This means you can benefit from the stability of fixed repayments, but also have the flexibility to pay off the loan as you want. Even if you don't plan on making extra repayments, it may be worth considering a personal loan that offers the ability to do so.
Most personal loan terms extend up to five or seven years. That is a long time and a lot can happen during this period. You could receive a pay rise, receive an unexpected inheritance or a large tax refund that you can put towards your loan to pay it off sooner.
Compare fixed rate personal loans that allow additional repayments
Updated December 8th, 2019
Is there anything to avoid with fixed rate personal loans?
Taking on a longer loan term than you need. While your repayments might be lower with a longer loan term, you will end up paying more interest. Budget your repayments before you apply and work out a repayment period that you can afford.
Taking a loan you can’t afford. Establish your ability to repay the loan before you fill in the application. While this is especially true if you take out a secured loan, as you stand to lose your collateral, defaulting on an unsecured loan can mean a bad credit rating for the next fives years.
Not reading the fine print. Go over your loan contract so you're aware of all fees, charges and conditions.
How do you apply for a fixed rate personal loan?
Compare + click. Use the table above to compare your fixed rate personal loan options. Once you find a loan that's right for you, you can click on the lender's name to read a more detailed review or click "Go to site" to start the application process.
Eligibility + application. You can confirm your eligibility on the Finder review page or on the lender's website. You will need to meet minimum age, income, employment and credit requirements before submitting your application. Online applications differ, but generally you will need your personal, financial and employment details.
Approval + funding. You can usually find out if you're approved or conditionally approved within a few minutes, but some lenders may take longer. You can check back with the lender to find out about the status of your application. If you're approved, your loan can be funded any time from that same day to a week later. Check with the lender for details on a timeframe.
Some questions we've been asked about fixed rate personal loans
A fixed rate is a rate that is locked into your loan contract at the beginning of your term. With a variable rate loan, you still have a rate applied to your loan contract, but this may fluctuate throughout your term.
This depends on your lender but you may be able to apply for a loan top-up. Keep in mind that this will be considered as a new application for credit.
You generally aren't able to make additional repayments to a fixed rate personal loan. However, this does differ between lenders so check before you apply.
This differs between lenders, but you'll usually be able to apply for a loan term of between one and five years.
Matt Corke is the head of publishing in Australia for Finder. He previously worked as the publisher for credit cards, home loans, personal loans and credit scores. Matt built his first website in 1999 and has been building computers since he was in his early teens. In that time he has survived the dot-com crash and countless Google algorithm updates.
You'll receive a variable rate between p.a. and 16.40 p.a. based on your risk profile A flexible loan with amounts from $2,001 and terms starting from 6 months. Interest and comparison rates calculated for a loan term of 3 years.
You'll receive a fixed rate between 8.95% p.a. and 16.95% p.a. based on your risk profile Apply for loans from $5,000 and get a dedicated loan manager. No security required. Note: Applicants approved before 31 December 2019 will receive a special offer $200 Coles Gift Card.
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