Loan Repayments? Here's How They Affect Your Budget (2026)

For many Australians, the question of whether loan repayments count as expenses is a crucial one, especially when budgeting or planning finances. Knowing how to categorise these payments can significantly impact your financial strategy and decisions. Let's dive into the details to help you make informed choices that align with your financial goals.

Understanding Loan Repayments and Expenses

Loan repayments are typically made up of two components: the principal and the interest. The principal is the original sum borrowed, while the interest is the cost of borrowing that sum. When it comes to personal finance, understanding how these repayments fit into your budget can be pivotal. Generally, in accounting terms, only the interest component of a loan repayment is considered an expense. The principal repayment is treated as a reduction of liability. However, understanding these distinctions can help you more accurately plan your day-to-day expenses and long-term financial strategies.

Current Loan Rates and Options

As of 2026, the Australian financial landscape offers a diverse array of loan products, with interest rates generally ranging from 6.49% to 12% depending on the type of loan and the borrower’s credit profile. Here’s a quick overview of some of the most common loan types and their current rates:

When selecting a loan, it's essential to consider factors like the fixed or variable interest rate, fees, and features that might affect your repayments. Esteb and Co, with access to over 83 lenders, can help you navigate these options to find a loan that suits your financial needs and goals.

Steps to Manage Loan Repayments as Expenses

Managing loan repayments effectively as part of your expenses requires careful planning and organisation. Here are some steps to help you:

1. Calculate Your Total Monthly Payment: Determine the total amount you need to pay each month, including both principal and interest.
2. Break Down the Components: Identify the interest portion of your repayment, as this will be your actual expense.
3. Include Interest in Your Budget: Add the interest portion to your monthly expense budget to ensure you’re accounting for it properly.
4. Monitor and Adjust: Regularly check your loan statement to track how much interest you're paying and adjust your budget as necessary.
5. Consider Refinancing: If interest rates drop or your financial situation changes, consider refinancing to a lower rate to reduce your interest expenses.

Expert Tips and Considerations

Here are some expert tips to help you manage your loan repayments effectively:

• Set Up Automatic Payments: This ensures you never miss a payment and can help you avoid late fees.
• Create an Emergency Fund: Having a buffer can help you maintain repayments even in unexpected situations.
• Review Your Loan Regularly: With the financial market constantly evolving, what was a great deal two years ago might not be the best option today.
• Utilise Lender Features: Some loans offer features like offset accounts or redraw facilities, which can help reduce your interest expenses over time.

Frequently Asked Questions

1. Do loan repayments count as expenses on my tax return?
   Generally, only the interest part of your loan repayment is considered a tax-deductible expense if the loan is used for income-producing purposes.
2. Can I claim my personal loan interest as a tax deduction?
   Personal loan interest is typically not tax-deductible unless the loan is used for investment purposes, like buying shares.
3. What happens if I miss a loan repayment?
   Missing a repayment can result in late fees, a negative impact on your credit score, and potential legal actions from the lender.
4. How can I reduce the interest expense on my loan?
   Consider making extra repayments, refinancing for a lower rate, or negotiating with your lender for better terms.
5. Is it better to pay off a loan early?
   Paying off a loan early can save you on interest costs, but check for any early repayment fees that might apply.
6. How do I know if I'm getting the best loan deal?
   Consult a mortgage broker like Esteb and Co, who can compare offers from over 83 lenders to find a loan that fits your needs.
7. Why is only the interest considered an expense?
   The principal repayment reduces the amount owed, while interest is the cost of borrowing, making it an expense.