How to apply for a personal loan

Finance Writer · 18 June 2021
Big expense looming? A personal loan could help give you a quick cash boost when you most need it – with common reasons being to pay for a wedding, buy a new car or fix up the home.

But before applying for a personal loan, you may wish to consider these tips to help strengthen your application.

In this article:

What do you need to qualify for a personal loan?

Personal loans are subject to credit approval, so you’ll need to make sure that you qualify before applying. You can check your credit score for free with Canstar. All banks and lenders have their own specific loan criteria, but usually require that you:

  • are at least 18 years old
  • are an Australian citizen or permanent resident
  • live in Australia
  • meet their minimum income requirements
  • have a reasonable credit rating
  • are not going through bankruptcy

What to consider before applying for a personal loan

There are many lenders and products to choose from, such as secured or unsecured loans and fixed or variable interest rate loans. If you are experiencing financial difficulty or receive Centrelink payments, you may have other borrowing options, such as the Pension Loans Scheme or No Interest Loan Scheme if you meet eligibility requirements. If you are considering a short-term personal loan, or payday loan, keep in mind there are many risks and potentially very high costs to consider.

It’s important that you do your research before submitting any applications, paying particular attention to the fees, interest rates, and terms and conditions to make sure you can manage your new repayments.

Additionally, the interest rate you’ll be offered will generally be based on how much the lender trusts you to make loan repayments on time, which partly depends on your credit score. Be mindful of variable interest rates, because while you may benefit if the interest rate goes down, you will pay more if it rises, and it’s important you can meet any increased repayments.

How to apply for a personal loan

If you decide that a personal loan is right for your circumstances, then applications are relatively straightforward. Some lenders allow initial online applications that can take around 15 minutes to complete if you’ve prepared all your documents and information in advance. Traditional lenders, like banks, may also allow for in-person or phone applications.

Before you start, here are some extra things you can do to strengthen your application and improve your likelihood of approval:

1. Apply for a realistic amount

While it is nice to think about having extra money on hand for more ‘stuff’, don’t get caught up in spending money you don’t need to. Be realistic about how much you really need to borrow, and avoid overextending yourself. Remember that when you take out a loan, you’ll need to repay the original amount plus interest. Plus, if you miss repayments, it might negatively impact your credit score.

2. Check and manage your credit rating

Most lenders will do a credit check as part of a loan application to determine your suitability for finance. Therefore, you may like to first check your credit rating to make sure it’s a good one.

There are simple things you can do to build and maintain a good credit rating, such as paying your phone and power bills on time. Also, be mindful that missed payments and multiple applications for credit (especially declined applications), could negatively affect your score.

It can take some time to improve your credit rating, so if you have a low score, you may want to seriously evaluate if you really need a personal loan right now too. Could you save up, or consider another option if you receive Centrelink? Canstar has related articles about getting a loan with no credit history, plus about what to watch out for with bad credit personal loans.

3. Manage your money well

Do you consider yourself to be ‘good with money’? Lenders will be looking at your account history to see how you manage your income and spending.

They may check:

  • how your accounts are set up (e.g. salary paid into one account and split into savings and expense accounts)
  • your spending habits and bill repayments
  • your debt management
  • if there’s a history of overdrawing

If the reason you’re applying for a personal loan isn’t to help consolidate your debt, then consider paying off any existing debts first.

4. Develop a good savings habit

In addition to effective money management, lenders may look for a regular savings habit as a reliable indicator you’ll be able to repay the loan. So, if you’re not already, consider setting up regular contributions to a savings account. Ensure that you submit bank statements that can demonstrate you are a regular saver.

Personal loans can help you access money quickly for big or unplanned expenses. However, it’s important that you weigh up the pros and cons, make sure you’re eligible, and take care to seek out a loan you feel is suitable for  your circumstances. Remember too: applying for credit often (and unsuccessfully) can impact your credit score and limit your eligibility for future finance.

Free financial advice is available from a financial counsellor via the National Debt Helpline (NDH), which you can contact on 1800 007 007. The NDH helps consumers find individual counsellors and organisations in their area. It can also provide information and resources on what your rights are if you are experiencing financial hardship.


Cover image source: WAYHOME studio/

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