How to Save Money on a Personal Loan

Personal loans are a flexible and convenient way to access funds for a range of needs, from consolidating debt to covering unexpected expenses or funding a major purchase. However, like any form of credit, personal loans come with costs such as interest rates, fees, and charges. While these expenses are part of the process, there are smart ways to manage them and save money.

This guide shares the top 10 strategies to help you save money on a personal loan, including tips for choosing the best loan, managing repayments effectively, and keeping interest costs as low as possible.

1. Talk to an Expert

Personal loans, with their various rates, terms, and conditions, can feel overwhelming. This is especially true if you don't have the time to compare lenders and read all the fine print.

A Finance Broker, with their in-depth knowledge of the market and attention to detail, can provide personalised advice tailored to your specific financial situation. They can help you compare loan options, uncover hidden fees, and negotiate better terms—potentially saving you money and reducing stress.

Their expertise in understanding your unique financial needs can guide you in selecting a loan that fits your immediate goals and long-term plans.

Want to save time and money? Chat with one of our Emu Money Brokers, who can compare over 100+ loan products from more than 50 lenders in just a few minutes. Simply complete the 'Get Started' form, and someone will reach out to you shortly.

2. Consider the Right Product for Your Needs

There are several types of personal loans available in Australia to suit a variety of needs, whether it's for consolidating debt, funding a major purchase, covering unexpected expenses, or achieving personal goals. Each loan type comes with its own features, benefits, and potential drawbacks. Choosing the wrong loan can lead to higher costs, so it's important to understand the differences and select the option that best fits your financial situation.

3. Use Security If Possible

Using collateral can be a smart way to save money when taking out a personal loan. By offering assets like property or a car as security, you reduce the lender's risk, which often results in lower interest rates compared to unsecured loans. This can help you save significantly over the life of the loan.

Secured loans are a popular choice for borrowers who want access to better rates and terms. Providing collateral can also increase your chances of loan approval, especially if your credit history is limited or less than perfect.

However, it's important to understand the risks. Using collateral means the assets you pledge are at stake if you're unable to repay the loan. Before choosing a secured loan, carefully assess your financial situation and ability to meet repayments.

For those confident in their financial stability, secured loans can be a cost-effective way to borrow. They allow you to use your assets to access the funds you need at a lower cost. Ultimately, deciding whether to use collateral should involve a clear understanding of the benefits and risks, ensuring it aligns with your financial goals and repayment capacity.

4. Manage Your Credit Score

A strong credit score is one of the most important factors when applying for a personal loan. It reflects your financial responsibility and creditworthiness, helping lenders assess the risk of lending to you. A higher credit score not only increases your chances of approval but also helps you secure better terms, such as lower interest rates and more flexible repayment options.

In essence, a good credit score shows a history of paying bills on time and managing credit responsibly, which reassures lenders that you're less likely to default. On the other hand, a lower score—caused by late payments, high credit card balances, or limited credit history—can make it harder to get approved or result in higher interest rates.

Improving your credit score before applying for a personal loan is a smart move, especially if you plan ahead. Start by checking your credit reports regularly to ensure there are no errors or inaccuracies. Addressing any mistakes promptly can help boost your score.

Paying your bills on time is crucial, as payment history has the biggest impact on your credit score. Additionally, aim to lower your credit utilisation ratio—this means using less of your available credit limit. Building a strong credit history takes time, so adopting these habits well in advance of applying for a loan can make a big difference. A higher credit score can make the loan process smoother and help you access more favourable rates and terms.

5. Manage Your Cash Flow

Managing your personal finances effectively is a key factor that lenders consider when assessing a personal loan application. Lenders look at your income and spending patterns to evaluate your financial health and ability to make repayments. A stable or growing income is often viewed as a sign of good financial management, giving lenders confidence that you're less likely to default on the loan.

On the other hand, if your financial records show irregular income, sudden gaps, or declining trends, it can raise concerns about your ability to repay. Demonstrating consistent and stable finances can help you not only secure a loan but also negotiate better terms.

To keep your finances in good shape, it's important to practice strong financial planning and budgeting. Regularly review your income and expenses to identify trends, address shortfalls, and find areas to save. Simple strategies like cutting unnecessary costs, building an emergency fund, and planning for seasonal expenses can go a long way in maintaining financial stability.

Before applying for a personal loan, consider creating a clear budget or savings plan to show lenders that you're financially responsible. Taking these steps not only improves your chances of approval but can also help you access better rates and terms, giving you more control over your financial future.

6. Reduce Your Loan Term

When trying to save money on a personal loan, the loan term is an important factor to consider. A shorter loan term usually means higher monthly repayments but significantly less interest paid over the life of the loan. If you can comfortably manage larger repayments, choosing a shorter term can lead to substantial savings.

On the other hand, a longer loan term often means smaller, more manageable monthly repayments, which might suit those looking to maintain flexibility in their budget. However, it's important to keep in mind that the total interest paid over a longer term can be much higher. While longer terms can offer short-term relief, they may cost more in the long run.

Here's an example of how you could save $8,624 by picking a 12 month term over a 60 month term, on a $50,000 loan with a 7.99% interest rate:

Term	Repayment Amount	Total Amount to Repay
12 months	$4,349	$52,190
24 months	$2,261	$54,267
36 months	$1,566	$56,397
48 months	$1,220	$58,579
60 months	$1,013	$60,814

7. Alter Payment Frequency

Choosing the right payment frequency for your personal loan — whether it's weekly, fortnightly, or monthly — can affect the total amount you repay over the life of the loan. Opting for more frequent repayments, such as weekly or fortnightly, can help you save on interest, as your loan balance reduces faster, decreasing the interest that accrues over time. This can be a great option if you have a steady income and want to pay off your loan sooner.

However, it's important to consider what works best for your budget. If your income varies or you prefer more flexibility, monthly repayments might be a better fit. While they may result in paying more interest overall, they can provide more breathing room in your finances. Ultimately, the choice of repayment frequency should align with your financial situation and your ability to make regular payments comfortably.

8. Be Mindful of Fees

When taking out a personal loan, it's important to watch out for additional fees that can increase the overall cost of borrowing. For example, monthly service fees can add up significantly over the life of the loan. Direct debit fees, charged for processing each repayment, may seem small on their own but can accumulate quickly, especially with more frequent repayments. If you plan to pay off your loan early, be aware of early termination fees, as they could offset some of the savings from repaying the loan ahead of schedule.

Not all lenders charge these fees, so it's essential to review the loan terms carefully and understand the total cost, not just the interest rate. Taking the time to compare fees and charges across lenders can help you make a more informed decision and choose a loan that aligns with your financial goals.

9. Consider Refinancing

Refinancing a personal loan can be a smart way to take advantage of better rates or terms currently available in the market. Your financial situation may have improved since you first took out the loan, making it possible to secure a better deal now.

Refinancing involves replacing your existing loan with a new one, often with more favourable terms such as a lower interest rate, shorter loan term, or a repayment structure that better fits your current budget. This can help you save money over time, reduce your monthly payments, or make it easier to manage your finances.

Before deciding to refinance, it's important to weigh the potential costs and benefits carefully. For example, early termination fees on your current loan can sometimes be significant, so you'll need to calculate whether the savings from refinancing will outweigh these costs. Additionally, refinancing may involve application fees or other charges, which should also be considered.

Getting professional advice can make the process smoother. An Emu Money Broker can help you explore refinancing options, compare loan products, and understand the financial implications. They can ensure that refinancing aligns with both your immediate goals, like reducing payments, and your long-term financial plans.