If you’re here, it’s because you likely need a cash influx for a major purchase and you’re wondering how eligible you are for a loan - we’re here to give you tips on how to increase your likelihood of approval.
Let’s look at Driva’s top tips for getting approved for your personal loan!
What criteria will affect your eligibility to secure personal loans?
Past loan repayments and credit history
The most influential factor in determining personal loan eligibility is your credit history. Understanding your credit history gives lenders an idea of your financial situation and where you are when it comes to paying back your debts.
When you’ve got accounts in arrears via unsuccessful payments, etc., it doesn’t help you build a strong case for securing loan approval. You need a good credit history to be considered for a personal loan. This is especially true for traditional banks.
Your current employment status matters when it comes to personal loan eligibility. Most lenders want to know you’ve got a job that provides a steady income and solid financial position. When you’re employed full-time, earning a decent salary, and only have a few monthly expenses which offer freed-up cash, you’re looking pretty good. Now, that’s not to say there are no options for part-time or casual workers.
Unfortunately, the people who have the hardest time getting loans are the unemployed and self-employed workers. Funny enough, self-employed workers might face the biggest battle with getting approved for personal loans - even if they have a good account history and would be comfortably able to finance what they borrow. This is due to banks and lenders may consider self-employed income as 'unpredictable' and therefore at a much higher risk of missing repayments.
Assets and outstanding debts
When you apply for a personal loan, different lenders will require a list of assets, regular expenses, and debts currently attached to your name. Why is this so? Well, by understanding everything connected to your name, lenders can assess your financial situation more clearly and decide on your ability to meet repayments over a long or short period. Assets can boost your application and help you get approved for a personal loan, while large debts, poor credit history and expenses may hinder your chances.
Centrelink can become a tricky obstacle when applying for personal loans. Some lenders will count it as a form of income, but numerous restrictions often exist. Most of your income needs to come from another place, and it must meet the minimum income requirement. This means your Centrelink income is often counted as secondary regular income or additional money. It may act to strengthen your application in some instances, but it cannot be the backbone of the application.
Always make sure the lenders you’re applying to accept Centrelink income before you begin the application process. An important thing to note - previously failed applications on other loans, in the form of an online application or in-person, may hurt your chances of getting unsecured or secured loans in the future.
Current and forecasted income
Lenders want to understand where you are and where you’re going financially. This gives them a better idea of your ability to repay the loan and whether or not they should invest in you by providing the loan. By forecasting your income, lenders will be able to decide on your loan’s probation period, maximum borrowing amount and even what loan term they offer. You can make the case that the loan could save you money or make you additional income. This builds a case for why you need the loan.
Status as an Australian citizen or permanent resident
To be successful in a personal loan application, there’s a set of basic requirements that get you in the door, and one such basic requirement is citizenship. Unfortunately, it is one of the more influential factors in deciding your personal loan eligibility, as most loans require you to be an Australian citizen or at least a permanent resident. However, there are options for people on temporary or working visas, but they come with numerous additional requirements. Another basic requirement is the person applying for the loan needs to be 18 and over.
Type of loan, i.e. an unsecured personal loan
There is more than one kind of personal loan. You’ve got variable, fixed rate, unsecured, secured, line of credit, debt consolidation, and loan with a guarantor.
- Variable - Variable loans mean that the interest can fluctuate according to interest rates.
- Fixed Rate - This loan means that the amount you’re paying back is set in stone and can’t be changed.
- Unsecured - Unsecured loans are when you get given the money and are in agreement with the lender to pay monthly instalments but aren’t offering any security that you will pay. These can result in higher interest rates due to the associated risks.
- Secured - This type of loan requires collateral to be used as security for the lender in the event you default. This provides the lender with the right to repossess the asset if you fail to pay your bills.
- Line of Credit - This is a flexible loan that is for a defined amount of money which is accessible when needed. You can repay it immediately or over time via extra repayments. Interest is only charged on what you spend.
- Debt Consolidation Loan - A debt consolidation loan is when you lump all the debts you have into a new loan. It means the debts still exist, but they exist in one place now instead of across several accounts, home loans, etc.
- Loan With a Guarantor - This type of loan requires a family member or friend to co-sign the loan, making them responsible for it in the event you cannot pay the monthly instalment. These loans can have lower interest rates as it’s less risky for the lender.
What are some tactics for getting a personal loan approved?
1. Maintain a good credit rating
When you’re applying for a personal loan, you want the lender to take you seriously. Unfortunately, it’s hard to take any loan applicant seriously when their credit rating isn’t up to the standards needed.
So, what makes a bad credit rating? When you miss payments and fees, have accounts in arrears, or have multiple failed credit/loan applications to your name, it negatively impacts your credit rating. All of these instances are attached to a credit report, and they can reflect poor money management and a lack of sufficient income. This doesn’t bode well for the overall application and isn’t what you want your lender to see when they run a credit check on you.
What if I already have bad credit?
If you’ve got bad credit, that doesn’t mean there’s no hope. You’ll be unable to apply for loans of larger amounts, but you can apply for short-term loans. You may ask, why would you want a short-term loan? What is a short-term loan going to help? Well, by paying these loans’ bills and fees on time every month for the duration of the loan, you can rehabilitate your credit history! This can feel like a process, and there's no real workaround if you’ve got bad credit. You have to prove yourself all over again - but it’s worth it in the long run.
What if I don’t have a credit score at all?
If you’ve got no credit score, that’s easier to work with than bad credit. When you’ve got no credit score, it means you’ve yet to prove yourself, and that’s a good position to be in. You will want to start applying for small loans, with comparison rates you know you can cover easily and build a credit history by meeting your regular loan repayments on time. In doing this, you’ll slowly build a credit history and your credit score. It will take a bit of time, but it will ultimately be worth it.
2. Reduce your credit card limit
By reducing your credit card limit, you’re reducing the additional interest and potential debt build-up, which can become unmanageable. So spend what you need, and don’t go overboard, driving yourself into deeper debt.
3. Prove you’re capable of a good savings record
Paying your debts on time is important, but showcasing your saving abilities is just as important. So, every month, portion off a bit of your salary and put it aside into your savings. This demonstrates financial responsibility. It proves you’ve got money to use to pay back the loan but also that you make enough money that you’re able to save in the first place.
4. Show clean bank statements
When you’re applying for a loan, they scrutinise everything, including your bank statements. So, when presenting those bank statements, make sure their void of things that might become potential red flags for lenders. What do we mean by this? We’re talking about activities that showcase a careless attitude towards money, such as gambling, excessive spending on alcohol, constant large cash withdrawals, etc.
5. Pay off debt before seeking a personal loan
Before getting into a personal loan with a large value and interest attached to it, you need to clear off your current debts. Entering a major commitment like a personal loan can be dangerous when you’ve already got a lot of debt attached to your name. This creates a scenario where you’re paying off a lot of money monthly, leaving you with little to survive on. It also opens you up to the potential to default on the loan and fall into arrears.
Want to learn more about improving your credit score? We’ve got a whole article on how to improve your credit score that’s guaranteed to help get you started. So, check it out!
Ready to fill out a loan application?
With Driva, we’re ready to connect you with the best lenders in Australia. By inputting your personal information and the details of what you’re hoping to purchase, you’ll be connected with the best options suited for you and your loan needs. So, what are you waiting for? Start your personal loan application today, and let’s get you financed!
Can I get a personal loan if I’m self-employed?
It’s difficult to get a personal loan when you’re self-employed. Lenders want assurances that you’re able to meet the monthly repayments, and they treat self-employment as riskier than being employed or unemployed. So how do you get a loan if you’re self-employed? Well, you’ve got two options. The first option is a specialist lender, while the second is a low-doc loan. A low-doc loan requires fewer documents than traditional personal loans but can have significantly higher fees and interest rates.
Can I get a personal loan if I’m unemployed?
It’s not impossible to get a personal loan if you’re unemployed. However, while it’s not impossible, it’s still far more difficult than if you were employed and earning a steady income. The main point is to prove you’re able to make regular repayments. Lenders assess your ability to repay based on whether you’ve got some form of regular income (regardless of where it comes from) and your creditworthiness through credit reports and scores.
Can I get a personal loan if I’m a student?
Yes, but an important distinction is what kind of student? Only full-time University students can apply and potentially get a personal loan. Some borrowers offer student-specific loans. These can often have longer commitments meaning lower monthly payments. While that sounds amazing, be careful as you don’t want to end up in a commitment that extends well beyond university and has excessive interest attached to it.
Can I get a personal loan if I’m on Centrelink?
It depends. Some lenders, usually the more traditional ones, such as credit unions and banks, might consider your application. You need to not only meet their criteria but, if possible and where applicable, exceed them. You need to make a convincing case that you can make regular repayments without falling victim to financial hard times.