A personal loan can be the cash boost you're looking for when everyday expenses arise. Whether you're looking to purchase a car, go on vacation, fund a wedding, or even consolidate your existing debts, applying for a personal loan could be a quick and easy way to access funds. So how do you apply for a personal loan? Here's exactly what you need to know about the application process.
What steps are involved in applying for a personal loan?
1. Conduct some research to find the right loan for you
Comparing different loans online and working out what best suits your needs is an important first step. You want to work out what type of personal loan you're after as there isn't just one type of product to choose from. There are:
- Secured personal loans
- Unsecured personal loans
- Car loans
- Debt consolidation loans
- Student loans
- Line of credit loans
Once you've decided on the type of personal loan you want, the next step is to research what providers on the market are offering including the:
Interest rate
Interest rates and fees will vary from lender to lender, and even a small difference can make a big impact on the overall cost of the loan. A secured loan will generally have a lower interest rate as the loan is secured against an asset. This means there's less risk involved for the lender.
Comparison rate
If you want to work out the true cost of the loan including interest and fees, it's important to look at the comparison rate. This is something lenders are required to list so you know what you're signing up for - you get a better picture of your potential costs.
Fees and charges
Look out for application fees, ongoing fees, missed repayment fees and early exit fees.
Loan term
How long you have to pay the loan back. While a five year term may have lower repayments than a one year term, you'll likely pay more interest on the longer loan term. Not all lenders offer the same loan term.
Extra payments and redraw
If you're after flexibility and unique features, find out which lenders offer penalty-free additional repayments and redraw facilities. These will allow you to lower interest payable over the life of the loan, and potentially shorten the term considerably.
2. Decide how much to borrow
In order for the loan application to be successful, you'll need to be able to meet the repayments, so it's essential that you work out the correct amount to borrow. After all, you don't want to go through the hassle of applying for a personal loan to only find out you were unsuccessful in the end.
3. Check your credit score
It's never a bad idea to check your credit history before applying for any type of loan. Not only does it increase your chance of being approved, but could also grant you access to better interest rates. An excellent score is anywhere between 833 and 1,200 (if you're using Equifax) or between 800 and 1,000 with other agencies such as illion or Experian. A good score is anywhere from 500 to 800 and a poor score is usually below 400. Ideally, you want your credit score to sit in the upper ranges, so make sure you're paying your bills on time and working to reduce your existing debts (if you have any).
4. Get assessed by your chosen lender
The next step in the personal loan process is pretty straightforward - apply online and get an answer about your eligibility Eligibility criteria will likely vary on the lender, however these are the typical criteria you'll need to meet:
- Be at least 18 years old
- Hold citizenship or permanent residency in Australia, or have the right to work in Australia
- Currently be employed and have a regular source of income
- Have a good credit rating and history
- Must be free from bankruptcy for the last seven years
5. Gather your supporting documents
When applying for a personal loan, there are certain documents you'll need to provide to the lender to prove your identity, income, and your ability to repay the loan. You may need to show one or more of the following. As with any loan, you'll need at least 100 points of ID such as your drivers licence, passport, or birth certificate. You will also need to provide the lender personal information including your name, address, and contact details. The lender will also ask for proof of income in the form of recent pay slips and bank statements to show your proof of savings. They may also wish for you to provide details of your assets including vehicles and property. If you are self-employed, you will need to provide at least two Notices of Assessment from the Australian Taxation Office, or in many cases two years' worth of Business Activity Statements (BAS). Some application forms will require information about your regular monthly expenses, such as your rent or mortgage repayments, your phone or internet plan, and so on, so it can be handy to have this ready. You may also need to provide information about any other credit cards, loans or bank accounts you hold with other institutions.
6. Apply for the loan
Once you've completed all the previous steps, you're ready to apply. Typically, you can apply for a personal loan online, over the phone, or in a bank branch in-person - it all depends on the lender you choose.
How long does it take to get approved for a personal loan?
Typically, you will be notified of your approval within 1-2 business days of submitting. However, there are some lenders out there that can give you approval within a few hours or even within minutes. Be wary of lenders offering 'fast easy cash' as these may be payday loans with shorter terms attracting much higher interest rates. Still wondering if you can afford a personal loan? Try our budget or loan repayment calculators to get a better idea. Ready to begin? Compare personal loans now.
