Why eligibility criteria matters for personal loan applications

Can I get a personal loan? The answer depends on personal loan eligibility criteria of the lender you apply for, and if you’re able to meet it. Always be mindful of your personal circumstances and ability to repay a loan before you decide to apply for a loan.

Why do you need the money? Is it for a car loan, home renovations, wedding, holiday, funeral, equipment, medical bill, household goods, investment or to consolidate all your debts? This may dictate the loan size you need and from there you can consider how much you can afford to borrow.

As you check out lenders’ websites, you’ll get an indication of what their lending limits are based on your income and the time to pay off the loan.

Loan terms, conditions, amounts, limits, and interest rates will vary between lenders (banks, credit unions, mutual banks and peer-to-peer lenders). They can dictate the loan lengths and amounts, offering better terms to more trusted applicants. Generally, a personal loan is considered a short term debt that shouldn’t saddle you with long-term debt.

Lenders have responsible lending obligations requiring them to complete an assessment on applicants to help ensure a loan is not unsuitable for the borrower. The lender will want to be confident that you can pay the loan back with interest within the agreed term.

To apply for a loan, you’ll need to meet lenders’ eligibility criteria, and they will conduct an assessment which could include:

• Age – you must be 18 or over
• Residency – Australian citizens or permanent residents are more likely to secure a personal loan than those on working or temporary visas who must meet extra conditions
• Income –including working arrangements, such as permanent full time, part time, casual or self-employed
• Job security – you’ve been working in your current role for a certain period which will vary among lenders
• Assets – such as car, home, home contents, high-value jewellery, etc.
• Expenses – lenders will ask for a budget or ask you to fill in your weekly/monthly spending and to see your bank account transactions
• Debts – including credit cards, payday loans, store cards, etc
• Credit history – lenders will check your credit rating. Black marks can occur if you’ve defaulted on loans, been bankrupt, or had judgements recorded against you
• Loan security – if you’re offering an asset, such as your car, as security for the loan, there will be lenders’ limits on the age and value of the vehicle they’ll accept.

The finer details of the criteria will change depending on how much you’re looking to borrow and the lender you choose. It may also vary depending on the reason for the loan. For example, you may need to provide extra information for secured car loans, such as the tax invoice, and details of a comprehensive insurance policy.

Lenders will look to cover their risks, and there’s no guarantee your loan application will be approved. However, there are things you can do which may make you a stronger applicant.

There are a number of things you can do which may help increase your chances of being approved the first time:

• Pay off as much debt as you can before you apply, ideally showing a pattern of regular payments
• Demonstrate you can save and have the banking records to prove it
• Reduce your spending and slash your bills where possible
• Contact your credit card provider to cut the limit on your card because lenders view this as debt
• Apply for a loan after you’ve passed the probationary period in a new job
• Keep your credit rating high by paying off debts and bills on time
• Only apply for as much money as you need and can afford repay.

Having bad credit won’t make you ineligible for a personal loan with all lenders, but it may make it more difficult or more expensive. It may help to check your credit score and try to improve your credit rating. This is updated regularly to show how much you’ve borrowed, your credit applications, and if you’ve paid your debts on time. For more information on how to get a copy of your report, visit the government’s official moneysmart website.

And if you're struggling financially, it's always a good idea to seek help and assistance, and to avoid taking on additional debt. Moneysmart has a range of information and lists assistance options for financial hardship on their website.

Another challenge is if you have no credit history. Perhaps you’ve never taken out a car loan, credit card or line of credit so nothing will show up on your credit report. That can make it more difficult for lenders to work out your risk profile. So, consider how you can demonstrate your financial record that could appeal to lenders, maybe by sharing a good savings history.

To get a suitable deal that suits your circumstances can take a bit of research, so:

• Don’t limit your comparison of lenders’ offerings. Shortlist the ones that work for you on eligibility, terms and cost
• Never borrow more than you can afford. Follow a budget, track your spending, and live within your means
• Avoid submitting several applications. They will show up on your credit report and could decrease your rating if there are several in a short time
• Look around for better offers. Ensure you check a lender's comparison rate, which includes its interest rate plus most fees, which can help compare different loan options
• Resist the temptation to spend the lump sum when it arrives in your account. Prepare a budget to guide your spending
• Consider if it is an unsecured loan, or a secured loan, which will better suit your circumstances
• Understand a personal loan involves you signing a contract with the lender, so there are repercussions if you don’t meet repayments. Defaulting an unsecured personal loan means lenders can take action to recover the amount plus their enforcement costs. If you fall behind on your secured loan, lenders could be entitled to seize and sell the assets you’ve put up as security.

Online applications are popular for personal loans, which means some applicants can have a quick response. That sounds easy, but as above, there are a few steps to deciding if a personal loan is right for you. You can compare a range of personal loans quickly and easily with our comparison table.