How to Compare Personal Loans in Australia: Rates, Fees and Total Costs

Choosing a personal loan involves more than finding the lowest advertised interest rate. Fees, repayment terms, loan features and your eligibility can all affect the total amount you pay.

In Australia, borrowers can compare personal loans using information provided by lenders, including the interest rate, comparison rate and applicable fees. Understanding these details before applying can help you make a more informed borrowing decision.

This guide explains how personal loans work, what costs to check, how to estimate repayments and where to find reliable information about borrowing in Australia.

What Is a Personal Loan?

A personal loan is money borrowed from a lender that must be repaid over an agreed period, usually with interest and any applicable fees.

People may use personal loans to finance a car, pay for home improvements, consolidate eligible debts or cover other significant expenses.

Personal loans generally fall into two categories:

Secured personal loans: The loan is backed by an asset, such as a vehicle. The lender may have rights over that asset if the borrower fails to meet the loan agreement.
Unsecured personal loans: The loan is not secured against a specific asset. Approval and pricing depend on the lender's assessment of the applicant and the product's terms.

The availability of these options, interest rates and eligibility criteria varies between lenders.

Before borrowing, consider whether the expense is necessary, whether you can afford the repayments and whether a lower-cost alternative is available.

1. Compare the Interest Rate and Comparison Rate

The interest rate is the rate charged on the amount you borrow. However, it does not necessarily represent the full cost of a loan.

A comparison rate combines the interest rate with most applicable fees and charges into a single percentage, calculated using prescribed assumptions.

For example, a loan with a lower advertised interest rate may have a higher comparison rate because of its fees.

When comparing loans, review both figures rather than relying on the advertised interest rate alone.

Keep in mind that a comparison rate is based on a specified example and may not reflect the exact cost of your individual loan. Your actual rate, fees and repayment schedule may differ.

For further information, see the Australian Government's Moneysmart guide to personal loans.

2. Check All Fees and Charges

Interest is only one component of borrowing costs. Depending on the product, you may also encounter:

Establishment or application fees
Ongoing account or administration fees
Late payment fees
Early repayment fees, where applicable
Other charges specified in the loan contract

Some loans may have no establishment fee, while others charge an upfront amount.

Check whether fees are payable separately or included in the loan balance. If a fee is deducted from the amount advanced, you could receive less money than the amount you are required to repay.

Read the product information and loan contract carefully before accepting an offer.

3. Understand Fixed and Variable Interest Rates

Personal loans may offer fixed or variable interest rates, depending on the lender and product.

Fixed interest rates

A fixed rate generally remains unchanged for the agreed fixed-rate period. This can make repayments more predictable and easier to include in a household budget.

However, check whether additional repayments are permitted and whether early repayment charges apply.

Variable interest rates

A variable rate can change under the terms of the loan agreement. Depending on the product, changes may affect your repayment amount or the time needed to repay the balance.

If you are considering a variable-rate loan, assess whether you could still afford the repayments if the rate increased.

Neither option is automatically better for every borrower. The right choice depends on the loan terms, your financial circumstances and your repayment preferences.

4. Calculate the Total Cost of Borrowing

Before applying, estimate the repayments and total amount payable over the loan term.

Consider this hypothetical example:

Loan amount: A$10,000
Annual interest rate: 10%
Loan term: 3 years
Repayment frequency: Monthly
Additional fees: Excluded

Assuming a fixed annual rate of 10%, a fully amortising loan with monthly repayments and a monthly rate of 10% divided by 12, the estimated repayment is approximately A$323.23 per month.

Over 36 months, the total repayments would be approximately A$11,636.

The estimated interest cost would therefore be about A$1,636.

These figures are illustrative estimates, not a lender's quote. Actual repayments can differ because of fees, calculation methods, payment dates and contract terms.

When comparing real offers, use each lender's repayment calculator and confirm the total amount payable under the proposed contract.

5. Check Whether You Can Afford the Repayments

A lender's willingness to offer a loan does not mean the repayments will be comfortable for your household budget.

Start by calculating your regular take-home income. Then subtract essential expenses, existing debt repayments, bills and other necessary commitments.

Consider the following questions:

Will the repayments leave enough money for essential expenses?
Could you still afford them if your income fell or your expenses increased?
Do you have enough savings to deal with unexpected costs?
Are you borrowing for a necessary expense or to cover a recurring budget shortfall?

Avoid relying on optimistic assumptions about future income.

Australian credit laws include responsible lending obligations for relevant credit providers. ASIC explains that lenders must assess whether a proposed credit contract is unsuitable, including in circumstances where the borrower could not meet the obligations without substantial hardship.

You can learn more from ASIC's guide to loans and credit cards.

6. Understand How Loan Applications May Affect Your Credit File

Lenders may consider your credit history, income, expenses, existing debts and other information when assessing an application.

Submitting multiple applications in a short period can affect your credit file and may influence how lenders assess your borrowing profile.

Before applying, compare available products and review their eligibility criteria. Ask the lender whether an initial eligibility check involves a credit enquiry and whether that enquiry will be recorded on your credit file.

Do not assume that every eligibility check has the same effect. The process depends on the lender and the type of enquiry.

7. Check the Lender's Credentials

Before entering into a credit contract, verify the lender or relevant credit provider using official Australian sources.

ASIC provides a Professional Registers Search that allows users to search relevant registers for credit licensees and credit representatives.

Check the legal entity name and licence details rather than relying solely on a trading name, advertisement or website logo.

Credit licensing requirements can vary depending on the activity and applicable exemptions. If the legal identity of the provider is unclear, seek clarification before sharing sensitive information or signing a contract.

8. What If You Are Struggling to Repay a Personal Loan?

If a change in income, illness or unexpected expenses makes repayments difficult, contact your lender as early as possible.

Explain your circumstances and ask whether financial hardship assistance is available. Keep records of your communications and request written confirmation of any proposed repayment arrangement.

If you cannot resolve a complaint with an eligible financial firm, the Australian Financial Complaints Authority (AFCA) may be able to help.

AFCA provides a free complaint-resolution service for eligible disputes involving financial firms, including certain loan and financial hardship complaints.

Visit the AFCA financial hardship guide for more information.

Do not assume that missed repayments will automatically be waived or that a lender must approve a particular arrangement. The available options depend on your circumstances and the applicable rules.

Frequently Asked Questions

What is a good interest rate for a personal loan in Australia?

There is no single interest rate that is best for every borrower. Available rates depend on factors such as the lender, loan amount, term, security and the applicant's circumstances.

Compare current offers using both the advertised interest rate and comparison rate, and check the eligibility criteria before applying.

Is a lower comparison rate always better?

A lower comparison rate can indicate lower borrowing costs for the prescribed comparison example. However, it may not represent your exact loan cost.

Check the actual rate offered to you, the fees, repayment terms and any product conditions before deciding.

Can I repay a personal loan early?

That depends on the loan contract. Some products allow additional repayments or early repayment without a fee, while others may impose conditions or charges.

Review the contract and ask the lender how early repayment would affect your total cost.

Does applying for a personal loan affect my credit score?

A formal credit application may result in a credit enquiry being recorded on your credit file. The effect on your credit score depends on your circumstances and the credit-reporting model.

Check whether the lender's initial assessment involves a formal credit enquiry before proceeding.

Where can I compare personal loans in Australia?

Start by reviewing the product information and calculators provided by individual lenders. You can also use the Australian Government's Moneysmart resources to understand interest rates, comparison rates and loan fees.

Compare the total cost and conditions rather than choosing solely on the basis of an advertised rate.

Comparing personal loans carefully can help you understand the financial commitment before signing a contract.

Review the interest rate, comparison rate, fees, repayment schedule and total amount payable. Check the lender's credentials, assess your budget and read the loan terms before applying.

A loan that appears affordable at first may become difficult to manage if your circumstances change. Taking time to compare the full costs can help you make a more informed decision.

Official sources

Disclaimer: This article provides general educational information and does not constitute personal financial, legal or credit advice. Loan terms, eligibility criteria and fees vary by lender. Verify current information with official sources and the relevant lender before making a financial decision.

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