Get a little flex with a variable rate personal loan

With a variable rate personal loan, you can make extra repayments and repay your loan early without penalty. You will also have access to redraw facilities. While the loan comes with benefits and extra features, your interest rate can fluctuate monthly based on the market rate. This makes it difficult to predict repayments.

How does a variable rate loan work?

With a variable rate loan, your interest payments could potentially change from month to month based on market conditions. Unlike fixed rate loans, if the interest rate drops, you will pay less. But if it increases, your interest payments will also increase.

That said, variable rate loans come with more features than fixed rate loans. You will be able to make additional repayments without penalty or repay your loan early without paying fees. You will also be able to redraw your extra repayments if needed.

What features does a variable rate personal loan have?

Here's what you can typically expect with a variable rate personal loan:

• Secured or unsecured loans. For a secured loan, you may be able to borrow up to $100,000, or $50,000 for an unsecured loan.
• Standard loan terms. Loan terms generally range from 1 to 7 years.
• Fluctuating interest. Your interest rate may change on a monthly basis based on the market rate. This may make budgeting difficult as you won't be able to predict your repayments. You could end up paying less for some months, and more for others.
• Fees. As with any loan, there may be establishment and ongoing monthly fees.
• Repayment flexibility. Variable rate personal loans give you a lot of flexibility with repayments. You can repay your loan early without penalty or make extra repayments and reduce the total loan amount. You can also redraw funds if you wish. As there is no penalty for exiting the loan early, you could also switch to another loan without incurring charges.

What is the difference between fixed rate and variable rate loans?

Is a variable rate loan better for me?

There are a number of factors to consider when choosing between fixed and variable interest. You should ask yourself the following questions:

• Is repayment flexibility important to me?

If you want to be able to make extra repayments and repay the loan early, then a variable rate loan might be the way to go. Some fixed rate loans also offer similar features, so make sure to look into that if you would prefer having fixed repayments.

• Which option is cheaper?

Both fixed and variable rate loans offer competitive rates, but you also need to consider the monetary advantage of extra repayments. You should also consider fees and see which loan works out to be cheaper, not merely monthly but also at the end of the term. You can use our personal loan calculator to help you figure out whether you can afford the loan.

• How am I with budgeting?

If you're someone who needs the certainty of fixed repayments, then a variable rate loan may not be suitable. If you think fluctuating interest payments will throw a spanner in your budget or if you don't have that flexibility, then a fixed rate loan may be better.

• Will I be able to absorb the cost of higher interest payments if I choose a variable rate loan?

If interest rates fall, you will naturally benefit from a variable rate loan. If it falls and you've locked in with a fixed rate, then you'll be paying more than the market rate. But if the rate does increase, are you in a position to absorb the extra cost? Will you have trouble meeting your repayments?

How do I compare variable rate personal loans?

To help you find the right variable rate loan, you should look out for the following factors:

• Type of loan. Is the loan secured or unsecured? Are you able or willing to offer security? Secured loans require an asset as collateral and come with lower interest rates. For an unsecured loan, no security is required but the interest rate is higher. Secured loans come with the risk of losing your asset if you don't meet loan repayments.
• Cost and affordability. You need to consider how much the loan will cost you, inclusive of interest and fees. Comparing interest rates is key, but it's not the only variable to consider. You should also keep an eye on other fees and the comparison rate. The latter includes account interest and fees and indicates the true cost of the loan. Some fees include establishment fees and monthly or annual account maintenance fees. Once you've accounted for the cost, consider whether you can afford the loan. Look at the monthly repayments and whether they sit comfortably in your budget. Also check the total cost of the loan.
• What is the loan term? Your loan term is how long you have to repay the loan. Variable rate loans come with a 1- to 7-year term. The length of the term will affect how high your repayments are. With a short term, you can expect higher monthly repayments. But with longer terms, you pay more in interest and fees. You can use a personal loan calculator to check your repayments with different loan terms.
• What features does the loan have and are there any charges? If you want particular features, check if there are any fees attached. Go for a loan that doesn't charge these fees as this will add to the overall cost of your loan.
• How much can I borrow? Lenders have set minimum and maximum lending amounts. Make sure the amount you need is on offer from the lender.
• Am I eligible? Lenders have specific requirements, including income and credit score. You should check if you're eligible for the loan before applying.
• How long will it take to receive the funds? Check how long the lender takes to approve the loan and transfer the funds to you. If you need your funds within a certain time, make sure to account for this in your comparison.

What are the pros and cons of variable rate personal loans?

Pros

• More features and flexibility. Pay off your loan faster or entirely, or redraw funds without charges.

• Not locked into a set rate. If the market rate drops, you're not locked into a loan with a set rate. You also get to pay less in interest.

Cons

• Interest rates are unpredictable. As market rates rise and fall, so does your loan interest rate. You could potentially pay more if interest rates rise.
• Budgeting may be difficult. Given the rise and fall of interest rates, you may find it difficult to budget your loan repayments.

What should I avoid with a variable rate personal loan?

• Applying for the first loan you see. You won't know if you're getting the best deal if you apply for the first loan you find. Compare your options first and make a shortlist based on cost, terms and eligibility.
• Borrowing more than you can afford. Check the cost of the loan and make sure you can afford it. You should be comfortably able to include your repayments in your budget. You should also avoid borrowing more than you need.
• Multiple applications. Every loan application shows up on your credit report. Several applications within a short period can have a negative impact on your credit score. This can make it harder for you to get a loan in the future. Select a single loan and lender that you're eligible for and suits your needs. If you've already applied for legal finance, give it a few more days or contact the lender before applying elsewhere.
• Long-term repercussions and legal issues. You are bound to its conditions once you sign a loan agreement. You will have to pay the loan and all the fees and payments. Keep in mind that for unsecured loans, the lender can initiate legal proceedings against you if you don't repay the loan. It can also report the debt to a credit reporting body like Equifax and use the services of a debt collector. With secured loans, the lender can repossess your loan security if you fail to make your repayments.

How can I apply for a variable rate personal loan?

🤔 Work out what type of loan to apply for, how much you need to borrow and what you can afford.

🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use Finder's comparison table.

✅ Select a lender. Click "Go to site" to be directed to the lender's page or "More info" if you want to read about the lender.

🖨️ Organise and prepare the required documentation. This will make the application process easier.

📱 Apply. Most lenders have their applications online.

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.

Frequently asked questions

• What are the pros and cons of a variable rate personal loan?

  A variable rate personal loan offers flexibility when interest rates drop, meaning your repayments could become cheaper over time. However, it also carries the risk that your repayments could rise if rates increase. It can suit borrowers who are comfortable with some uncertainty and want the chance to benefit from falling rates.

• Can I switch from a variable rate to a fixed rate personal loan later?

  Some lenders allow you to switch to a fixed rate during your loan term, but this isn't always the case. If you'd like that option, check with your lender before applying and ask what fees or conditions might apply to a rate switch.

• How often do variable interest rates change?

  There's no fixed schedule for rate changes. Lenders adjust variable rates based on market conditions, the Reserve Bank of Australia's cash rate and their own cost of funds. This means your repayments could change several times during your loan term.

• Can I make extra repayments on a variable rate loan?

  Yes, most variable rate personal loans allow extra repayments without penalty. This can help you pay off your loan faster and reduce the total interest you pay. Always confirm with your lender before making lump-sum payments.

• Is a variable rate personal loan good for debt consolidation?

  It can be, especially if you expect rates to remain stable or fall, as you could save on interest. However, if rates rise, your total repayments could increase. Consider your budget and risk tolerance before using a variable loan for debt consolidation.

• How can I manage my budget with a variable rate loan?

  To stay on top of repayments, build a buffer in your budget for potential rate increases. You might also set up automatic payments or make additional repayments while rates are low to cushion against future rises.

• What happens to my variable rate loan if the RBA cuts interest rates?

  If the Reserve Bank of Australia lowers the cash rate, your lender might reduce your loan's interest rate - but it's not guaranteed. Lenders decide independently whether to pass on rate cuts and by how much.

• Can I refinance a variable rate personal loan?

  Yes, you can refinance to another variable rate or switch to a fixed rate loan if you find a better deal. Compare fees, interest rates and early repayment conditions to make sure refinancing will save you money overall.

Written by

Matt Corke

Head of Publishing Ventures

Matt Corke is Finder’s head of publishing ventures. Prior to this he was head of publishing for Australia, New Zealand and emerging markets. 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. See full bio