How do you apply for a personal loan?

This article will tell you what you need to do to find a suitable personal loan and give yourself a good chance of a successful loan application.

In the market for a personal loan? The table below features personal loans with some of the lowest interest rates on the market.

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Personal Loan

Product Features

• Interest rates start at 14.95% and could be as high as 27.95% based on your personal circumstances and loan term
• Australian residents and citizens only
• Personal Loans from $5,000 to $25,000, with loan terms ranging from 24 - 48 months
• Terms, Conditions and Lending Criteria apply

Monthly repayments:$693

14.95%Advertised Rate (p.a.)

29.30%Comparison Rate*

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The personal loan application process

You should generally make sure you take the following steps before applying for a personal loan:

• Choose the type of loan you want

• Compare the interest rates and fees

• Check you have a clean credit history

• Check the eligibility criteria, and

• Have all the necessary documents ready to go

Doing all of this is necessary to ensure you don’t waste your time applying and can even help you avoid getting rejected by a lender, which can have negative consequences.

Choose the loan you want

Personal loans aren’t a one-size-fits-all product. There are different types, like:

• Secured personal loans

• Unsecured personal loans

• Line of credit loans and overdrafts

• Debt consolidation loans

• Student loans

• Car loans if you’re borrowing for a car, and

• Loans with fixed or variable interest rates

It may even be the case that you don’t need a personal loan. A different product might be more suitable for your circumstances, such as a credit card. But you should take a look at each of these different types of loans, as one of them may be better suited to what you’re after.

The table below displays credit cards with some of the lowest interest rates on the market, disregarding any temporary promotional offers.

Compare the interest rates and fees on different loans

Once you’ve settled on the type of loan you want, you then need to compare a number of them from a range of different providers, based on the interest rates and fees they offer.

Both fees and interest rates are extremely important when picking a personal loan. On average, personal loan interest rates are around 10% p.a. For secured loans (which usually have lower rates) you can often get rates around 8% on average and the lowest rates tend to be around 4-5%, while unsecured personal loans can easily have interest rates between 12% and 20%.

There are almost a dozen different fees that personal loans can come with, with the more common ones being application fees, ongoing fees, missed repayment fees and early exit fees. It’s important to check these fees too, because while most charge very little in fees, there are some that can charge you hundreds. A loan’s comparison rate can be a useful indicator, because a personal loan with high fees will often have a comparison rate that’s significantly higher than its advertised interest rate.

Getting a personal loan with an above-average interest rate and high fees can cost you hundreds (thousands, even) more over the course of a loan term. The table below highlights this before even factoring in any fees.

Total loan repayment across different interest rates (five-year term)

	$20,000 loan	$30,000 loan	$50,000 loan
6% p.a. interest rate	$23,199	$34,799	$57,998
10% p.a. interest rate	$25,496	$38,245	$63,741
15% p.a. interest rate	$28,548	$42,822	$71,370

You should also compare loan features (like redraw facilities) and different loan terms (the length of the loan), as these too can make a difference to how much you repay.

Check your credit history

Checking your credit history via numerous free sources available is another step you should take before hitting that apply button.

When applying for a credit product, whether it’s a personal loan, home loan, or credit card, having a good credit score can be beneficial, not only increasing your chances of approval but also potentially granting you access to better interest rates. This is particularly true for personal loans, as many lenders offer ‘tiered interest rates’ that are different depending on your credit score.

For example, lender SocietyOne offers the following interest rates for customers in these different credit score bands, for unsecured loans:

• Excellent credit: 6.99% p.a. to 9.49% p.a.

• Very good credit: 9.99% p.a. to 10.99% p.a.

• Good credit: 11.99% p.a.to 13.49% p.a.

• Average credit: 14.99% p.a. to 17,99% p.a.

You can learn what these different credit score ‘bands’ or ranges are in our article on credit scores. To get your credit score into the upper ranges, ensure you meet your bill repayments on time, every time, pay off any other existing debts and cancel unnecessary credit cards, and don’t apply for too many different loans at once.

Read: How can I get a car loan with bad credit?

Make sure you’re eligible for the loan

Not just anyone can apply for a personal loan. There are eligibility criteria you’ll need to meet, which vary slightly from lender to lender but are generally the following broad set of rules:

• You must be 18 years or over

• You must be a permanent Australian resident

• You must currently be employed and have a regular income

• You must be able to demonstrate a good credit history for the last 5 years

• You must be free from bankruptcy for the last 7 years

There are other criteria that banks and lenders will have for certain loans, which may be more or less strict. For example, some might require you to meet a certain minimum income threshold, while others will accept pension or Centrelink payments. Some loans are more lenient with their credit score requirements than others, while there are lenders that specialise in offering ‘bad credit’ loans to those with a difficult credit history.

You’re also unlikely to be allowed to borrow beyond the bank’s minimum and maximum loan amounts, so choose a loan that meets your borrowing needs and your credit history.

Have your supporting documents ready

When you’re ready to apply, you need to collect a number of documents that the lender will use as proof of your trustworthiness as a borrower. The documents most lenders will require include:

• Your personal information, like your name, address, contact details etc.

• At least 100 points of ID, which includes your driver’s license, passport, Medicare card etc.

• Proof of income, usually a pay summary of a couple of pay slips

• Bank statements, which you can download from your bank that show the lender how good you are at saving and spending wisely

• Details of your assets (like shares or properties you own) and liabilities (like credit cards and other loan debts you have)

Depending on what you’re borrowing for, you might need to provide the lender with some extra info. For example, people borrowing for a car often need to provide the lender with a tax invoice for the car they’re buying, details on the car and evidence of comprehensive car insurance. For a renovation, you might need to show them a contract with a builder.

By having all of these on hand, you’re ready to move to the final step.

Apply for your loan

Once you’ve done all this, and you’re confident you’re ready to go, you can now finally apply for that personal loan.

You can quite literally apply for a personal loan at hundreds of different places. Banks, mutual banks, some non-banks, online marketplaces and specialist lenders - you’re spoilt for choice really. Some of these personal loans will be good for what you’re after, others will be bad, but there’s a very good chance the right one for you is somewhere among those hundreds of products.

Depending on who you go with, you can apply for a personal loan:

• Online

• Over the phone

• Or in a bank branch in-person

Applying online is generally the quickest option, with some providers claiming it can take as little as five minutes.

Does it cost anything to apply for a personal loan?

Personal loans often charge a fee when you apply, called an application, upfront or establishment fee. This fee is charged by the lender to cover the cost of doing the paperwork and assessing your application. Based on Savings.com.au’s review of personal loan fees, this is one of the most common, and on average can cost you about $270. Some of the more expensive lenders can charge up to $600-$700, but there are a good number of personal loan providers that charge $0.

Depending on how much you’re borrowing, hundreds of dollars for an application fee can be very expensive, so try to look for a personal loan that charges a low - or non-existent - upfront fee.

How long does it take to get approved for a personal loan?

This will again depend on the lender, but in most cases, getting approved (or rejected) for a personal loan is quite a quick process. Some providers will give you an answer within 1-2 business days, others can give you approval within a few hours, while those with up-to-date online approval software can give you the go-ahead within 10 minutes (or so they say).

There are even some lenders offering smaller loans that claim to offer 60-second approval, which sounds great, but you might want to be slightly sceptical of brands that offer such a quick turnaround. They’re supposed to be properly reviewing your application after all.

Savings.com.au’s two cents

Being rejected for a personal loan can be bad for a couple of reasons:

• You’ll have to wait a bit longer for the money you’re after

• Rejection from a lender tends to show up as a negative on your credit history. Too many of these, and your credit score could fall, making it harder to get another loan.

It makes sense then to arm yourself with the knowledge and preparation necessary to all but guarantee your approval. You can further increase your chances of success by seeking pre-approval, which is when a lender gives you an estimate of how much they’ll lend to you before you officially apply.

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