Lock into certainty with a fixed rate personal loan.
Fixed rate personal loans let you lock into a rate at the beginning of your term, keeping your repayments set for the duration of your loan. This type of loan comes with a lot of benefits, but also a few added restrictions when compared to its 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.
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How do fixed rate personal loans work?
Fixed rate personal loans have an interest rate that does not increase or decrease for the duration of the loan term that is stated in your contract. Typical fixed rate personal loans last from one to seven years, but some extend up to ten 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.
What features come with these loans?
Fixed rate personal loans come with a number of benefits, but also a few restrictions. Here are the typical features you can expect:
- Loan term. Lenders offer varying loan terms depending on the type of loan it is (secured or unsecured) as well as a number of other factors, but you can usually expect a term of between one and seven years, with some lenders extending up to ten years. With some loans, part of this term may be fixed, with the other part of the term having a variable rate attached.
- Repayments stability. The interest rate is fixed, and that means your repayments stay the same for the entirety of your loan term. This is no matter what happens to rates in the market.
- Early payment penalties. Fixed rate personal loans usually 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 be expected to pay a fee. You might also find some lenders only charging fees if you repay your loan within a certain period, for example, in the first year.
- Fees. Look out for fees for processing the loan. These aren’t standard for fixed rate personal loans, so remember to compare what’s available.
What can you use a fixed rate personal loan for?
Personal loans that come with a fixed interest rate can be suitable to help you finance a range of different purposes:
- Purchasing a new or used car
- Home improvements
- Buying a vehicle such as a motorbike
- Taking a holiday
- Consolidating debt from loans and/or credit cards
- To get married
“I want a personal loan with a fixed rate – how can I compare my options?”
Given that there is no shortage of fixed rate personal loans to choose from, compare your options to ensure you end up with the best possible deal. You’ll need to consider the following:
- Is the loan secured or unsecured? These are the two most basic types of fixed rate personal loans. 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 come with lower interest than their unsecured counterparts because they’re less risky for lenders – you’ll lose your asset if you fail to repay the loan.
- What’s the interest rate? Comparing interest rates is important – 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.
- 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 seven years, but some lenders extend their offerings up to ten years. How long do you need to repay the loan? You can lower your repayments with a longer term but you will ultimately pay more interest. Decide what you need and then compare lenders so you can find a loan that’s right for you.
- What fees and penalties will I be charged? Look out for charges such as processing and stamping 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.
Benefits and drawbacks of fixed rate personal loans
- No change in what you pay. Your monthly repayments will stay the same for the entire loan term, allowing you to easily budget.
- Your rate won’t be affected if the market conditions take a turn. If market interest rates decrease you won’t have to worry about your interest rate increasing.
- You still have flexibility with your repayments. You will usually get the choice between weekly, fortnightly or monthly repayments and a choice in how long your loan term is. While early and additional repayment fees are common they differ, so compare to find lesser fees or lenders who do not charge them.
- There are additional fees. Fixed rate loans tend to attract fees for early repayments and for making additional payments than variable rate loans.
- You can’t benefit from favourable market conditions. If market interest rates improve, the rate applied to your loan won’t decrease.
- There may be restrictions on your repayments. You may not be able to make additional repayments or repay your loan early.
What you need to avoid with fixed rate 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 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 an unsecured 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.
Not sure if a fixed rate personal loan is right for you?
There are many different types of loans and some may be better for your individual situation than others. Compare the fixed rate personal loan alternatives below.
Unsecured Personal Loans
An unsecured personal loan will allow you to finance anything you want. Find and compare various options.