If you have an existing loan or are looking to take one on, you’re no doubt aware of the interest rate attached. The interest rate levied by the lender can have a huge part to play in what loan you choose and how quickly you can clear a debt. How do you know what is reasonable and competitive when it comes to interest rates? What is a good loan interest rate? It’s a sliding scale and can depend on a number of factors.
What Is A Good Loan Interest Rate?
What constitutes a good interest rate is dependent on a number of factors such as:
• The type of loan you have or are applying for: for instance, personal loans often have higher interest rates than a mortgage, but lower than a credit card.
• Your credit history: if you have a poor credit history the interest rate offered may be higher to offset the risk you represent to the lender.
• The current market conditions and cash rate set by the Reserve Bank.
These elements all combine to determine the final rate. So the answer to ‘what is a good loan interest rate?’ is relative to your circumstance.
Types Of Loans And Their Interest Rates
There are many types of loans, the top four most people encounter are:
Personal Loans:
Ideal for those needing funds to buy big-ticket items for the home, going on holidays, buying a car, paying off debts etc. There are two types of personal loans, secured and unsecured:
Secured Personal Loans: When you use an asset such as a house or car for security against the debt. If you are unable to repay the debt, the lender will potentially sell the asset to recoup their loss.
Unsecured Personal Loans: These require no security, but they usually come with a higher rate of interest as a result. This helps to offset the risk to the lender. According to research done in 2016, ‘personal loan interest rates ranged from a low of 6.28% to a high of 22.99% for an unsecured personal loan, and a low of 4.53% to a high of 19.49% for a secured personal loan.
Business Loans:
Similar to personal loans these can be secured or unsecured. With secured starting at around 5% interest and unsecured from 12%. The rate will often be determined based around high risk your business is and the lease term of your proposed premises.
Payday Loans:
A payday or ‘small amount’ loan can be useful if you need access to funds quickly in the short term. There are usually limitations on how much you can borrow and they require minimal checks for approval.
These loans tend to be capped at a maximum of $2000 and give you anywhere between 16 days and 12 months to pay it back. They attract high fees and interest, meaning that by the time you pay it back, you have often paid almost double what you borrowed. Interest rates can be anywhere from 9-22%
Mortgage/Home Loans:
The biggest loan you are likely to ever undertake, a home loan or mortgage interest rate can vary a lot. Banks often have higher interest whereas alternate lenders may be able to negotiate a lower rate. Your rate will also be impacted by whether you choose to pay interest and principal, interest only and whether you opt for a fixed or variable term. At their lowest, home loan rates can be under 2% at their highest, over 5%.
Homeloan Rate Terms:
Baseline interest rates for home loans fluctuate. When you undertake a loan, you will have the option to choose a fixed or variable rate. What is a good loan interest rate term for you may depend on your situation at the time.
Fixed: a fixed rate refers to the interest rate remaining the same for a set period regardless of market conditions. This can have both pros and cons. Should the rates suddenly skyrocket, you are protected, should they plummet – you are stuck at the higher rate.
Variable: A variable-rate means you will experience fluctuations in your loans interest rate. This doesn’t offer as much stability as a fixed rate and could increase at any time. Conversely, it does mean you’ll reap the benefits of any sudden drops.
How To Secure A Low-Interest Rate
Even if interest rates are at an all-time low, your personal circumstances still have a huge part to play in the rate you are offered. So what is a good loan interest rate for you? It depends – ultimately your best bet of securing a great rate is to have a healthy credit score. Your credit score offers insight into your financial habits and your reliability as a borrower.
Ensure You’re Eligible For A Great Interest Rate
Are you consistently being offered high-interest rates? Or unable to negotiate lower rates due to mounting debts and a poor credit score, Debt Consolidation Australia can help. We specialise in consolidating and reducing your debts to get your finances back on track. Call today on 1300 795 775 and gain the power to negotiate for better interest rates.