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Published February 28, 2023

How to Get a Personal Loan in 7 Steps

Getting a loan starts with assessing your borrowing needs and capacity to repay, then comparing offers to find the best deal.

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Learning how to get a loan suitable for your needs can potentially save you thousands in interest and fees. Below are seven steps to guide you through the process.

Assess your personal loan requirements

It’s essential to think about whether a personal loan is right for your situation. 

When you take out a personal loan, you are borrowing a lump sum to pay for something big. While you can use a loan for all sorts of things — such as buying a car, renovating your home, paying for a wedding or holiday, or even consolidating your debt — you must quantify how much you need to borrow in the first place. 

Loans generally start from $2,000 and can range upwards of $75,000. How much you can borrow depends on factors like your creditworthiness, personal situation, income and expenses, and whether you can offer collateral. You’ll have to repay the funds with interest over an agreed term, typically between one and seven years. 

Additionally, a personal loan is a once-off arrangement. If you would like a reusable loan where you can make repayments and then withdraw money again, a credit card or line of credit might be more suitable.

» MORE: When to use a personal loan vs. when to use a credit card

Assess your personal loan eligibility

To apply for a personal loan, you’ll usually need to meet the following criteria:

  • Be at least 18 years of age.
  • Be an Australian citizen or a permanent resident, or hold an appropriate visa if you’re a non-resident or migrant.
  • Have a regular and verifiable source of income.
  • Have a fixed address in Australia

If you’re self-employed, you may have to meet additional credit assessment requirements.

Check your credit report

Another consideration is your credit score, a measure of your creditworthiness expressed as a single number. It’s based on your credit report — a document with detailed information about your credit accounts, repayment history and past defaults. 

Lenders often use your credit score to assess how financially responsible you are and how well you manage your money. Generally, the higher your score, the more likely your application will be approved, and the more favourable your borrowing terms will be.

There are three credit bureaus in Australia — Experian, Equifax and illion — and each has its own credit rating system.

Below Average0-4590-5491-299
Very Good735-852700-799700-799

It’s often a good idea to check your credit report to make sure the details are correct before making an application. By law, credit bureaus must take reasonable steps to correct any mistakes within 30 days.

If you’re a first-time borrower with little credit history, you may wish to consider applying for a personal loan with a guarantor to boost your chances of getting approval.

» MORE: What is the minimum credit score for personal loan in Australia?

Identify the right type of loan

Next, you’ll need to figure out what type of loan you need. This means deciding whether to apply for a secured or unsecured loan and if you want to borrow at a fixed or variable interest rate.

When you take out a secured loan, you must provide an asset you own as collateral. This might be your car, home, boat, jewellery items or cash in your savings account. Generally, the value of the collateral should be the same as the amount you wish to borrow. 

Secured loans are less risky for lenders because they can seize your asset to recover their money if you fail to repay them. Consequently, lenders tend to charge lower interest rates.

Unsecured loans, on the other hand, don’t require collateral. Lenders face more significant risks as they must take you to court to get their money back if you stop paying. As a result, they’ll often charge higher interest and have stricter approval criteria.

You can also choose to borrow at a fixed or variable rate. The advantage of a fixed-rate loan is that repayments stay the same even if general interest rates change. With a variable-rate loan, your repayments can increase or decrease in line with interest rate movements, making them harder to predict and budget.

Get an estimated interest rate

Formal credit applications are listed as “hard enquiries” on your credit report regardless of whether you’re approved. However, making multiple hard enquiries in a short time can lower your credit score and signal to lenders you’re in financial trouble.

That said, to encourage new business, many lenders are happy to give you an estimated interest rate online, over the phone or in person, based on some quick questions about your situation and credit history. These “soft enquiries” won’t affect your credit score and are not visible to lenders viewing your credit report.

By getting a pre-approval offer with a personalised interest rate from a shortlist of potential lenders, you’ll get a better idea of the rate you can qualify for and how the estimated repayments might fit into your monthly budget. Typically, you’re not obliged to proceed with a formal loan application, and if you decide to do so, a full credit check will be carried out. Remember that you’re not guaranteed loan approval even if you receive a personalised interest rate.

Shop around for the best deal

With your personal loan eligibility confirmed and an idea of the interest rate you can get, it’s time to compare loans from potential lenders so you can pick one that suits you best.

Here are some key features to consider and compare:

  • Fees. Some lenders impose more types of fees, while others charge fewer fees but higher amounts. Look out for additional costs like application fees, monthly service fees, and late or missed payment fees.
  • Comparison rate. Designed to show the actual cost of a loan, including interest and most upfront and ongoing fees, comparison rates are helpful when you want to compare loans from different lenders. You’ll have to read the fine print to find out the amounts the comparison rate is based on.
  • Early repayment. If you want the flexibility to pay off your loan faster by making additional or bigger repayments, check whether prospective lenders charge early or additional repayment fees.
  • Loan term. A longer loan term usually means lower repayments, but you could end up paying a lot more interest over the life of the loan.
  • Loan purpose. It’s a good idea to confirm whether there are any restrictions on how you use the funds you borrow.

Comparison websites can be useful for this step, but it’s important to remember that they may not cover all your options and may receive a commission for product recommendations.

Make an application

Once you have picked a lender and loan option, have your personal, employment and financial information ready to begin a formal application. Most lenders will let you apply online.

Loan processes vary, but you’ll likely have to provide supporting documents to verify your income, address and identity.

Frequently asked questions about getting a personal loan

How long does a personal loan take to get approved?

Some lenders will give you a response in 60 seconds, while others might take a few business days to process applications. 

Can I get a loan if I am on benefits or have bad credit?

You can still apply for a loan if you’re a low-income earner. Although most lenders require applicants to earn above an income threshold, many accept government benefits as a source of income. 

Some non-bank lenders will give personal loans to people with poor credit, but they will likely charge high interest rates and fees. 

About the Author

Kristie Kwok

Kristie Kwok is a personal finance expert and former contributing writer at NerdWallet Australia. She has covered personal and business finance for almost 10 years. She is a qualified chartered…

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