If you’re looking attaking out a personal loan, one of the key questions you’ll need to answer is whether you want a loan with a fixed or variable interest rate. Both types of loans have their advantages as well as things to consider.
How are the two different?
For a personal loan with afixed interest rate, you lock in an interest rate that stays the same over the life of the loan.
For avariable interest ratepersonal loan, the interest rate can change, up or down, over the life of the loan.
Fixed rate personal loans
A fixed rate personal loan means certainty for the future. The terms of the loan are locked in and you can plan for the future knowing your interest rate and minimum repayment amounts won’t change.
The key advantages:
- You can set repayment amounts for the life of the loan
- Protect yourself against the possibility of future interest rate rises
- Easier to budget for the future and set financial goals
Things to consider:
- With CommBank Fixed Rate Personal Loans you can only make up to $1,000 in extra repayments a year1
- You cannot redraw any additional repayments you’ve made
- Fees will apply if you want to pay out your loan early
- You won’t benefit from any interest rate decreases
Variable rate personal loans
A variable rate personal loan offers more flexibility than a fixed rate personal loan. But with this flexibility comes the chance that the interest rate may change over the life of the loan.
The key advantages:
- With CommBank Variable Rate Personal Loans you can make unlimited extra repayments, which can help you save on interest payments over the life of the loan
- You also have the flexibility to redraw available funds from your redraw facility (fees apply if conducted in branch). There is also no minimum amount to redraw.
Things to consider:
- Your repayments may increase should the interest rate rise
- It can be harder to budget for the future as you need to consider how future interest rate movements may affect your repayments
