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A personal loan can look straightforward at first glance: you borrow money, repay it over time, and pay interest along the way.
What you see is what you get, right? Well, sometimes.
Once you start comparing options, things can get murky fast.
You’ve got, approximately, countless different loan options and lenders in Australia, all promoting different things—from low rates and repayments to no ongoing fees. They are all putting their best foot forward to seem competitive, but beneath the surface can cost vastly different sums overall.
You’ve got two main things that affect the cost of a personal loan: interest and fees.
Just looking at the headline rate can be a good indication of what a loan may cost, but it’s not the full picture. Far from it. No matter the purpose of a loan it always helps to know exactly what you’re signing up for and what you’ll be charged for.
Here’s how personal loan fees and interest work, what charges to watch for, and how to compare loans with more confidence.
Interest is, literally, the price you pay for access to extra funds. It’s usually shown as a percentage rate and applied over the life of the loan.
The amount of interest you may pay depends on things like:
In general, the longer the loan term, the more interest you may pay overall. That’s one reason why two loans for the same amount can end up with very different total costs.
Personal loans are typically repaid in regular instalments over an agreed loan term. Each repayment usually includes:
Often interest will be charged on a yearly basis but will be applied monthly or daily, depending on the type and duration of the loan, as well as the lender.
A fixed rate stays the same for the life of the loan. The rate you have at the time of signing is the rate you’ll have at the final repayment.
That means your repayments are generally more predictable, which can make budgeting easier. If you want certainty and like knowing exactly what is due each week, fortnight, or month, a fixed rate may be easier to manage.
A variable rate can change over time. It depends on the wider market and the lender.
If the rate goes down, your repayments may become cheaper. If it goes up, your repayments may increase. This can make the loan less predictable, especially over a longer term.
For many borrowers, the choice comes down to flexibility versus certainty.
The fees are where many borrowers can get caught out, especially if it’s your first time taking out a personal loan.
Some personal loans have few fees, others decide to add lots of them to get as much value as they can from the loan (and from you). Ultimately, what fees are charged are governed by the National Consumer Credit Protection Act 2009, but are decided by the lender.
Here are the most common personal loan fees to look for.
An establishment fee is a one-off upfront charge for setting up the loan. It’s often charged as a percentage of the amount borrowed. You might also see it called an:
No matter what it’s called, the sentiment is the same—it’s an extra amount charged to establish the loan. Some lenders charge it separately. Other lenders add it to the total loan balance, increasing the amount on which you pay interest.
Even if the interest rate looks competitive, a large establishment fee can make the loan more expensive than it first appears.
Some personal loans charge an ongoing service fee while the loan is active.
This might be called:
These fees can quietly add up over time. It may not be much in isolation, but if you have a long term loan (3, 5, or even 7 years), it can add up into a hefty chunk of change. Especially when you are already paying interest on top of it.
For example, some of the big banks can charge up to $15 per month for a personal loan:
Even if the cost is spread out, that could still be a lot of extra money that you had to pay just for having a loan with a place.
A late payment fee is a charge some lenders apply if you miss a repayment or pay after the due date. You may be familiar with late payment fees from other loans or alternative sources of finance such as Zip or Afterpay.
This is important to check before you apply, especially if your income varies or your budget already feels tight. A missed payment may not just affect your account balance in the short term, but can make an already expensive finance option cost even more or begin a damaging debt spiral.
Some lenders charge a fee if you repay your personal loan early. This is, ostensibly, to recoup interest lost by a customer not having the loan for the full term.
This can feel like a bit of a punishment for responsible financial habits, but these fees do exist, particularly with fixed-rate products or structured loan contracts.
If you intend to pay off your loan early, make sure you’re aware of any early repayment fees waiting in the wings.
The early bird gets debited, in this case.
Unfortunately, sometimes.
Depending on the lender, you may also come across fees for:
Not every lender charges these, but they’re worth scanning for in the fine print.
A comparison rate is designed to give you a broader sense of a loan’s cost by combining the interest rate with certain fees and costs charged by the lender. A 10% interest rate could turn into a 20% equivalent when all the costs are included.
Still, it’s not perfect.
A comparison rate is a guide, not an exact answer. It may not capture every possible fee or reflect every repayment scenario. It’s a useful starting point, but you should still check the full breakdown carefully.
The loan term is the length of time you have to repay the loan. It affects both the short-term and long-term costs of the loan:
A lower monthly repayment can look more manageable, but if it stretches the loan out for years longer, it may cost more in the end. On the other hand, a short loan term only works if the repayments fit your budget without putting pressure on essentials.
You’ve got to find the balance that works for you and your situation.
When evaluating personal loan lenders, here are the main things worth comparing side-by-side
Check whether it’s fixed or variable, and whether it’s genuinely competitive. Shop around for different lenders to see what they're charging/offering.
Use this to get a broader sense of cost beyond the headline rate. Keep an eye out for these when shopping around.
This is often the clearest way to understand what the loan may actually cost overall.
Make sure the repayment fits your pay cycle and leaves room for regular expenses.
Check whether a longer term is lowering the repayment at the cost of more total interest.
Look closely for:
Don’t think a personal loan is the right fit?
Consider a Beforepay Pay Advance for short-term expenses! Borrow up to $2000 in as little as 5 minutes, without any hidden costs, early repayment fees, or late fees.
Still exploring your options?
Compare two of the many different loan options with our guide on the differences between pay advance and personal loan.
Or explore 5 practical ways to raise money for short-term expenses.
No. Some personal loans charge multiple fees, while others have fewer charges. It depends on the lender and the loan product.
Not always. It matters, but it doesn’t tell you everything. Fees, the loan term, and total amount repayable are just as important.
Sometimes, yes. But some lenders may charge an early repayment fee, so it’s worth checking the terms first.
Not usually overall. A longer term may lower each repayment, but it can increase the total amount of interest paid across the life of the loan.
A good starting point is the interest rate, comparison rate, fees, loan term, repayment amount, and total amount repayable.
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