Interest rates have changed: how does that affect a personal loan?

Interest rate changes in Australia can be confusing and nationally, according to research undertaken by the University of Western Australia, 1 in 3 men and 1 in 2 women don’t know how it plays into their likelihood of being approved for a personal loan*. 

Never fear if you’re struggling to wrap your head around it, we’re going to break it down for you. 

Whether you’re looking to consolidate debt, fund a big purchase, or cover unexpected expenses, understanding how interest rates work can help you plan ahead and shop for the best personal loan.

What happens when interest rates change?

In a nutshell, interest rates in Australia are heavily influenced by the Reserve Bank of Australia (RBA) and the economic climate. When the RBA raises or lowers interest rates, lenders often adjust their personal loan lending policies in response. 

This can affect: 

• How much you can borrow
• How easy it is to get approved
• Your monthly repayment amounts

If Interest Rates Rise...

When interest rates go up, lenders usually become more cautious. Here's what that could mean for you:

• Lenders may take a closer look at your spending habits, income stability, and existing debts
• Lenders may reduce how much they’re willing to loan 
• With higher interest rates, your repayments could also increase, making loans more expensive in the long term  

For example, someone who previously qualified for a $20,000 loan when rates were at 6% may now only qualify for $15,000 if rates rise to 9%. Lenders reduce risk by limiting the loan size to ensure repayments remain manageable.

If Interest Rates Fall...

When rates drop, lenders may become more flexible. So, what generally happens when interest rates drop: 

• Lenders may relax some of their strict loan conditions
• You may be able to borrow more money than before
• With a lower interest rate, your monthly repayments could become more affordable

Find out if you qualify for one of our loans, or use our loan repayment calculator to see what your loan repayments could be. 

* The Household, Income and Labour Dynamics in Australia (HILDA) survey, 2020

*Please consider: (1) Applying for a loan with Jacaranda Finance takes most applicants 5 to 12 minutes, but it could take longer depending on several factors such as but not limited to how fast you are at typing or if you have all the required information on hand.

*Please consider: (2) We do not guarantee same-day outcomes for all customers. Most customers get a same day outcome on their loan application provided they complete a loan application and provide all supporting information we request before 3pm Australian Eastern Standard Time (AEST) on a normal business day. Customers that complete an application or provide requested supporting information after 3pm AEST (or outside of business day working hours) will receive an outcome the following business day.

Written by - Dalima Bhandari

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