How to apply for a personal loan: application and approval process

There are a number of reasons you might apply for a personal loan – it may be that you wish to fund a major purchase or even consolidate existing debts. Whatever the case, there are  a number of key steps in the application process.

If you’re wondering how to apply for a loan, it’s a good idea to begin by researching the various loan products available on the market. You’ll then need to gather certain documents, and submit your actual loan application.

How do you research personal loans?

If you are considering applying for a personal loan, your first step might be to research what providers on the market are offering personal loans, and what might be suitable for your particular needs. Generally, when considering personal loans, it is important to keep in mind such things as:

  • The interest rate: Interest on a loan is the amount that you’ll repay on top of the amount you have borrowed, which is known as the principal. It can vary based on a number of factors, such as whether the loan is secured or unsecured and your credit score.
  • Fees and charges: Some loans come with establishment or ongoing fees, and some have fees for missed or even early payments, so it is important to get a sense of how much you’ll be charged.
  • The comparison rate: This is a figure that estimates the total cost of the loan per year, taking into account both the interest rate and most fees and charges, allowing you to get a better picture of your potential costs.
  • The loan term: The term of a loan refers to how long you’ll have to pay it back. A loan with a five-year term may have lower repayments than a loan with a one-year term, but you may  end up paying more in interest and fees over the life of the loan.
  • Flexibility around additional repayments: Some lenders may charge a fee if you make additional repayments to pay off a loan more rapidly, but others don’t, so it is important to keep this in mind if you wish to make additional repayments without a penalty.
  • Features: Speaking of extra repayments, some loans come with helpful features, such as a redraw facility which enables you to withdraw funds if you are ahead on your repayments and need the cash for another purpose.
  • Eligibility criteria: It is worth checking the eligibility criteria of any loan product to get an idea of how likely you are to be approved. For example, some loans may look appealing but may require an ‘excellent’ credit score.

If you know the amount that you wish to apply for, then you can compare personal loans with Canstar to get a sense of what’s on the market. You can also see which personal loans won Awards in Canstar’s Star Ratings.

What documents do you need to apply for a personal loan?

When applying for a personal loan, there are certain documents you’ll need to provide, in order to prove your identity and demonstrate to your lender that you are employed and have a regular income. It can be a good idea to gather these documents before you begin the application process. In general terms, you are likely to need:

  • ID documents such as a drivers licence or passport r to prove that you are aged over 18 and an Australian resident.
  • Proof of income, typically in the form of pay as you go (PAYG) payslips from your employer, to show that you earn a regular income that is above your lender’s minimum requirements.
  • Proof of savings, typically in the form of bank statements, to give the lender a picture of how you manage your finances.
  • Your employment details for the past three years.
  • A list of any assets you own, including such things as vehicles and property.
  • A list of any debts you may have, such as other personal loans or home loans, credit card debt, outstanding buy now pay later (BNPL) balances and the like.
  • A list of your general living expenses, including groceries, utilities, streaming services, rent, medical and transport costs, school fees and so on.

You may not need to provide all of this information, but it is a good idea to have it ready, depending on how strict your lender’s requirements are.

How do you apply for a personal loan?

Most major lenders and financial institutions will allow you to apply for a loan either in person, over the phone or online. If you are already a customer with the bank or financial institution, then you may not need to provide the proof of identity documentation listed above. Typically you can expect to hear back from the lender a few days after you apply, and they may have additional questions to ask for further supporting documentation.

Once your loan application is approved, you will be sent documents by your lender to sign and return, either electronically or by mail. Typically, a short time after this, the funds will be accessible to you.

Can you make multiple loan applications at the same time?

It is worth keeping in mind that making multiple loan applications to different lenders within a short space of time can negatively affect your credit score. For this reason, it may be advisable to carefully consider your options, weigh up lenders based on factors such as the price and features of their loans and your eligibility, and apply for the one loan you feel is most suitable for you.

What happens if you are rejected for a personal loan?

If your loan application is rejected, then it is important to understand why your lender might have rejected you before applying for another. Lenders in Australia are bound by responsible lending laws, and it is a condition of their license that they do not give credit if they believe a borrower cannot pay it back.

According to Moneysmart, a lender may deny your loan application if there are defaults (that is, overdue payments or payments for which the debt collection process has started) on your credit report, if you currently have payments that are more than 14 days overdue, or if your income or savings history indicates that you might struggle to pay the loan back.

What if you don’t meet the lender’s eligibility criteria?

If you are employed but feel you may not meet the lender’s eligibility criteria, then applying for a loan with a guarantor – a trusted person who can vouch for you and be responsible for the debt if you are unable to meet your required repayments  – can be an option that could strengthen your chances of approval.

If you are self-employed or a freelancer, you may not be able to provide regular payslips to show a lender proof of your income. In this situation, you may be able to apply for a ‘low doc’ or low documentation personal loan. These are loans designed specifically for people who wish to borrow money but may not have the necessary paperwork for a traditional loan application.

There are also personal loans available for people who are unemployed or on Centrelink, however, in these circumstances, you may find that an option other than a personal loan is more suitable to your needs. If you are experiencing financial hardship, then there are various free financial counselling services available throughout Australia.



Cover image source: Tippa Patt/

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This content was reviewed by Deputy Editor Sean Callery and Finance and Lifestyle Editor Shay Waraker as part of our fact-checking process.

Alasdair has more than 15 years of experience as a journalist, and he specialises in property and lifestyle topics for Canstar. He has a Bachelor of Laws (Honours) from the University of Queensland and has lectured at QUT. His work has appeared in outlets including Pedestrian.TV, the ABC and Junkee.

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