Low interest personal loans

What's a low personal loan interest rate in December 2023?

• Lowest unsecured personal loan rate: Harmoney Unsecured Personal Loan: 5.76% (comparison rate 6.55%).
• Lowest secured personal loan rate: Bank of Melbourne Fixed Secured Personal Loan: 6.49% (comparison rate 7.61%).
• Average unsecured personal loan rate in Finder's database: 10.79% p.a.
• The average Australian with a personal loan borrows $7,328 with a 3 year term.

Market update by Richard Whitten – Finder money editor

The rate you'll get depends on your credit score, income, liabilities and other factors. The lowest personal loan rates are for borrowers with excellent credit scores taking out secured personal loans.

But whatever your personal situation is, there are ways to get a lower rate and save money on a personal loan.

How can I get a low interest personal loan?

Not every borrower will qualify the absolute lowest loan rate on offer, but there are things you can do to get a lower rate. Here are our six tips:

1. Improve your credit score

The best thing you can do to get a lower rate is improve your credit score. This means making regular payments on existing debts, and making sure you don't have any missed payments or defaults. You could also lower your credit card limit and make sure you only have one card. Get more tips to improve your credit score.

2. Offer security

Having an asset to back your loan (like a car or house) can get you a lower rate. If you are have an asset you can and are willing to secure, it's worth checking if you can use it even when applying for a loan advertised as unsecured. Just make sure you can comfortably afford the repayments so you don't risk losing that asset.

3. Borrow less

A smaller loan amount makes you a less risky borrower in a lender's eyes. And it may get you a slightly lower rate. Keep in mind that some lenders might reject a small loan application if the loan is under its minimum loan amount.

4. Compare your options

Don't just go to your bank, and don't apply with the first lender you see. Compare personal loan rates, fees and features from multiple lenders. The market is competitive and there is little difference between banks and online lenders these days. Make sure you're getting a good deal.

5. Meet all the lending criteria

Before you apply for a loan, check the loan's terms and conditions carefully. Make sure you as a borrower meet the lender's requirements. Otherwise you'll get rejected, or end up on a higher rate.

6. Negotiate

You can sometimes ask the lender for a lower interest rate. If you find a lower rate elsewhere you could ask them to match, for example. This works if you already have a personal loan too.

How much can you save with a low rate loan?

While fees are important too, it's the interest rate that has the biggest impact on most personal loans.

A lower rate means lower monthly repayments and means you pay less interest over the life of the loan.

Here are some simple examples of the same loan with a different interest rate:

*For this simple example we've ignored loan fees, but it's important to factor in any upfront and ongoing fees.

Meet our money expert Graham Cooke

Graham heads Finder's insights team and specialises in a variety of financial topics, including credit cards, loans, insurance and investing. He regularly appears on TV including ABC News, Sunrise and Today, and edits Finder's Insights column.

Graham's top personal loans tips

• Check your credit score before you apply. A higher score usually unlocks better rates.
• Compare rates from multiple lenders to make sure you're getting a more competitive offer.
• Choose your loan length carefully: too long and you'll pay more interest, too short and your monthly repayments will be too high (use a calculator to check).

Your credit score affects how low your interest rate is

Most personal loans use risk-based pricing. This means your individual rate is determined by your credit score, your income, your outstanding debts and the type of loan you're applying for. You can spot these loans as they advertise an interest rate range, for example:

• Interest rate: 8.49% p.a to 27.9% p.a.

This means the lowest possible rate you can get is 8.49% p.a., if you have an excellent credit score and meet the lender's criteria. But if your credit score falls in a lower range, your rate will be higher. As high as 27.9% p.a.

Before applying for any personal loan you should know what your credit score is. You can check your credit score for free through Finder in just minutes.

Check your credit score for free

Which personal loans have the lowest rates?

The type of personal loan you're looking for has an impact on the rate you can get.

• Secured loans have lower rates than unsecured loans. If you have an asset, usually a car or property, you can offer that as security for your lender. This means you'll get a lower rate compared to an unsecured personal loan.
• Risk-based personal loans are cheaper if you have excellent credit. Most lenders use risk-based pricing, meaning your rate is lower if you have a good or excellent credit score and meet the lender's criteria. If you have a strong credit score then a risk-based personal loan could offer a lower rate.
• Loans from online lenders may be cheaper.
  Online lenders have lower operating costs and often boast some of the market's lowest personal loan rates. But these days even the big banks offer quite competitive rates. That's why comparing all your options is so important.

You can still get a competitive rate with an unsecured loan

If you don't have anything to offer as security you can still find unsecured personal loans with low interest rates. Often, there's only a couple of percentage points between a lender's lowest secured rate and lowest unsecured rate. Sometimes less than that.

What are the absolute lowest personal loan rates on the market?

If you search for low rate personal loans you might have seen rates under 6% p.a.. These are often green personal loans or loans secured by homes or term deposits. If you aren’t using your loan for green initiatives, or can’t secure your loan in that specific way, you won’t qualify for a rate this low.

How do I compare to find a low interest personal loan?

Even a low rate personal loan becomes pretty expensive if it has high fees, a long loan term and isn't the right loan for your needs.

These are the key things to look at in your comparison:

• Interest rate. A solid start to finding that low rate loan is to look for the lowest advertised rate. Remember that this normally advertises the lowest rate the lender offers, so if you don't have a perfect credit score you will probably be offered a higher rate. Non-risk based loans do exist though, where everyone who is approved receives the same interest rate regardless of credit score.
• Comparison rate. The comparison rate gives you an idea of how expensive a loan is when you include monthly and establishment fees. This is an example based on a 'typical' loan, so it won't be exactly the same for you however it's still the easiest way to see how expensive the loan is at a glance.
• Loan features. If a personal loan lets you make extra repayments and allows you to pay off the loan early, you can save money by getting out of debt faster. Some loans may have a cap on how many extra repayment you can make in a year. Some may not allow it at all.
• Fees. Personal loan fees can be hefty. There's usually an application fee of more than $100, or a fee charged as a percentage of the loan amount. And there's often a small monthly fee too. Add up the cost of fees before you apply for a loan.
• Loan terms. If your loan has a long term (say, 5 years) your monthly repayments will be smaller. But you'll pay much more interest over 5 years. A shorter loan term works out cheaper because you'll pay less interest. However, your monthly repayments will be higher. So you need to find a balance between a short and long loan term.
• Loan purpose. Not every borrower needs a lump sum of cash right now. There are other loan types that might work out cheaper for you, even with a higher rate. If you have a series of expenses to cover over time then a line of credit might work better. Or a personal overdraft.

Why compare personal loans with Finder?

We're free

Our personal loan comparison is completely free to use. There are no costs at all for you to use our database to find a better deal. Better still, we regularly run exclusive deals that you won't find on any other site.

We're experts

We've researched and reviewed hundreds of loans as part of our Finder Awards. Our database and tables are always up-to-date and our in-house experts regularly appear on Sunrise, 7News and SBS News.

We're independent

We are independently owned and have a mission to help Australians make better financial decisions. That means our opinions are our own and you can compare nearly every personal loan in Australia (and find a better deal).

We're here to help

Since 2014, we've helped 300,000+ people find a personal loan by explaining your options simply. You don't need to give us any details to use our comparison. We're here to help you make a decision.

Frequently Asked Questions about low interest personal loans

• Can I get a small loan with low interest?

  When comparing lenders it's important to check the minimum loan amount before applying.

  Most personal loan lenders in Finder's database have minimum loan requirements of between $2,000 and $5,000. If a lender says its minimum loan amount is $3,000, then it won't lend you $2,000.

  You can borrow very small amounts of money, but you'll have to look at a payday loan or other short term finance options. These smaller loans don't charge interest in some cases but charge hefty fees instead - up to 20% of the loan amount plus a 4% monthly fee.

  This makes a small loan a very expensive prospect.

• Is it worth paying off a low interest loan early?

  Any debt you can pay off faster saves you money. But another financial rule of thumb is to prioritise paying off high interest debts first.

  If you have a small low interest personal loan, a home loan and a big credit card debt you could approach it like this:

  • Keep making the minimum repayments on all your debts, obviously.
  • Prioritise putting any extra money you have into paying off the credit card debt as fast as possible. It has the highest rate.
  • Once that's sorted out, concentrate on the personal loan debt, which has a higher rate than your mortgage.

  Keep in mind this is simply a general example and is not personal financial advice. Your own situation may be different.

• Do banks have the lowest interest rates?

  Online lenders often have the lowest interest rates on personal loans. But the stereotype of the big banks being uncompetitive with rates just isn't always true.

  Looking at Finder's database, even some of the Big Four banks have personal loans with much lower rates than average. So don't count them out completely when comparing your options.

  And if you're already a customer with a big bank, you might find personal loan approval is fast and easy. And if you're already using the bank's app, you've got all your financial products on your phone in one place. The convenience might be worth a slightly higher rate.

• Can I get a low rate personal loan as a self-employed borrower?

  Self-employed borrowers often choose low doc personal loans because they don't have evidence of consistent income to qualify for a standard loan.

  As you'd expect these loans have higher rates. But if you have alternative proof of income (business tax returns, financial statements), your business is doing well and you have a good credit score you could qualify for a standard personal loan with a low rate.

• Can I get a lower rate from a peer to peer lender?

  Peer to peer lenders are online platforms that connect investors with money to individual borrowers. You request a loan and the platform checks your credit, processes the application and connects you to the funds.

  When it works well, you can get a fast low rate loan approved without too much trouble.

  But if you're borrowing a lot and your credit score isn't great, your rate could rise a lot more. And it might end up being higher or comparable to other lenders.

  You might not be able to borrow as much via peer to peer lenders, and you might not get loan features like a redraw facility.