Why Plan Your Personal Loan Repayments Before You Apply

Work out your repayments before you apply for a personal loan, not after. Knowing what you can comfortably pay each month tells you how much to borrow and for how long.

A lot of people start with the question "how much can I borrow?" A more useful one is "what can I repay without feeling squeezed?" Let's walk through how to answer it.

How Do You Calculate Personal Loan Repayments?

Your repayment depends on three things: the loan amount, the interest rate and the loan term. Change any one of them and the repayment moves.

A personal loan calculator does the maths for you, and we can run the numbers with you too. The key is to test a few different terms side by side instead of settling on the first figure you see. Our personal loan repayment guide explains the moving parts in more detail.

Also check whether the lender adds an establishment fee or a monthly fee. These sit on top of the interest, so they change what the loan really costs you. Ask for the full cost of the loan, not just the repayment.

Shorter Term or Longer Term: What Changes?

A shorter loan term means higher repayments but less interest overall. A longer term lowers each repayment but usually costs more in total.

Here is an illustrative example. Say someone wants to borrow $20,000 for a home project and sees a rate of 6.75% p.a. This is an example rate only. Your actual rate will depend on your lender, your circumstances and whether the loan is secured or unsecured.

• Over 5 years, the monthly repayment is roughly $394. Total interest comes to around $3,600.
• Over 3 years, the monthly repayment is roughly $615. Total interest comes to around $2,150.

The three-year option costs about $221 more each month but saves roughly $1,450 in interest. The trade-off is cash flow. If that extra $221 would leave the borrower stretched, the five-year term is the safer choice, even though it costs more overall.

So the borrower looks at the monthly budget first. Rent, bills, groceries and savings come out before anything else. In this scenario there is room for about $400 a month, so the five-year term fits. The borrower picks it, then plans to add small extra repayments when money allows, which shortens the loan without locking in a higher minimum.

Weekly, Fortnightly or Monthly Repayments: Which Suits You?

The right repayment frequency is the one that lines up with when you get paid. If your wages land fortnightly, fortnightly repayments mean the money leaves your account just after it arrives.

There is a bonus too. Paying half of the monthly amount every fortnight adds up to 26 half payments a year, which equals 13 full monthly payments instead of 12. That extra payment can help clear the loan sooner, though the result depends on how your lender calculates interest and whether it allows the change. Ask before you commit.

What Lenders Look At Before Approving Your Loan

Lenders mainly want to know whether you can afford the repayments. They look at your income, your existing debts, your living expenses and your credit history.

This is why planning your repayment first pays off. If you already know a $400 monthly repayment fits your budget, you can choose a loan amount that supports it. You are less likely to apply for more than you need, and a smaller loan amount can sit more comfortably within a lender's assessment.

If you have credit cards or other debts, they will be part of that picture. Sometimes rolling them into one loan makes the monthly budget easier to manage. Our debt consolidation page covers how that works, including the trade-off that stretching debt over a longer term can mean paying more interest.

Do Early Repayments and Extra Payments Save Money?

Extra repayments can reduce the interest you pay, because you owe less sooner. But some fixed rate loans charge an early exit fee or limit extra payments, so check the terms first.

Variable rate loans often allow extra repayments, though the rate can move up or down over time. Fixed rate loans give you certainty, but may be less flexible. Neither is right for everyone. It comes down to whether you value a steady repayment or room to pay the loan off faster.

When Is It Worth Refinancing a Personal Loan?

Refinancing can make sense if your current loan has a high rate, ongoing monthly fees or repayments that no longer suit your budget. It does not suit everyone, because a new loan may bring new establishment fees and a fresh term.

The question to ask is whether the savings outweigh the switching costs. Add up what you would pay on the new loan, including fees, and compare it with what you would pay if you stayed. If you are weighing this up, our personal loan refinance page is a good place to start.

If you are still working out what kind of loan you need, have a look at our personal loans page. Starting with a repayment you are happy with makes every other decision, from the term to the fees, a lot clearer.

Ready to put numbers on your own situation? Call one of our team or book an appointment at a time that works for you. We will talk through your budget, compare options from lenders and help you choose repayments you can live with.

Frequently Asked Questions