This blog is Part 2 in a 2-part series. In the first part, we mentioned all the types of personal loans that may be available to you. This post will tackle the application process so you can increase your chances of your getting your loan request approved. We’ll also explain how you can ensure that you don’t pay more than you need to. If you missed Part 1, check it out here.
Getting a Good Interest Rate for a Personal Loan
As mentioned in the first blog, there are seven types of personal loan you can apply for. In addition to allowing consumers to finance large purchases, this type of credit can be used to consolidate high-interest debt from credit cards and other loans or debts. Since most personal loans offer lower interest rates than credit cards and installment payments, a personal loan can lower your monthly payments.
Hence, to really get good interest rate, evaluate the following before taking on a personal loan:
1. The principal of the loan
This is the amount you plan on borrowing and the amount on which the interest will be calculated. This amount will be divided into equal monthly payments. These payments are called principal payments because it will go towards paying the total amount that is owed.
2. The interest rates
As with any type of loan, you will have to pay monthly interest charges. This charge will be separated from the principal and you will be able to see which part of your monthly payment is used to pay the interest and which part is used to pay off the principal. You will want to find an institution that offers competitive interest rates on personal loans. But when shopping around, remember that the more your credit history is pulled by lenders, the more hard inquiries will show on your record. Hard inquiries can negatively impact your credit score.
3. The annual percentage rates
The annual percentage rate, or APR, represents the actual yearly cost of funds over the total cost of your loan. It includes the interest rate, potential broker fees, and any lender fees over the term of a loan. This will also impact the total amount you will owe to the bank or the lender.
4. The loan terms
The loan term can be defined in two ways. It can either mean the length of time that you have to repay the loan or mean the number of installments needed to pay off the loan. Sometimes, a short loan term means paying less in terms of interest.
Hence, for good interest rates, you want to borrow only the amount you will really need. The higher the amount you borrow, the higher the interest will be, and the greater the chances of having a longer loan term.
You can also decide by which year you want to repay the totality of the amount borrowed and calculate your monthly repayment according to that deadline. If you can afford to pay more, do it. The shorter the loan term, the less the interest and the annual percentage rate.
Applying for a Personal Loan
Whether you are an existing customer or not, lenders and banks will require a list of documents to verify your identity, residential address, income, employment, and personal finance details.
1. Identity verification
Below is a list of items that can serve as proof of your identity. You’ll usually be required to produce two items for identity verification.
- Current driver’s licence
- Learner’s licence
- Passport
- Australian birth certificate
- Australian citizenship certificate
- Australian marriage certificate
- Proof of age card
- National Identity Card
- Pension card or health care card
- Department of Veterans pension card
- Australian higher education student card
- Australian Public Service employee ID card
2. Residential address verification
Documents that you may require include utility bills, mobile phone bills and bank statements. The proof of address you will submit must
- must not be older than 3 months
- must show your name
- must clearly show your residential address
Additionally, a utility bill will only be valid if it has been issued by a Local Government or utility provider.
3. Income and employment verification
The list of documents for this verification will depend on the source of your income.
i) If you are an employee:
- Latest three month’s salary slips
- Annual salary after tax deductions
- Bank statements (where salary is credited) for the last three months
ii) If you are self-employed:
- The tax returns from the last 1 or 2 years
- Your Notice of Assessment (issued within the last Financial Year)
- Business bank statements for the last three months
- Proof of continuity of business
iii) Rental income
- The tax returns from the last 1 or 2 years
- Your Notice of Assessment (issued within the last Financial Year)
- Business bank statements for the last three months
4. Other financial information
You may also have to submit:
- Credit card statements
- Loan statements if you have current loan accounts
- Information about your assets
- An estimation of your current expenses
Lending money comes with a lot of risks. Banks and lenders require all this information to evaluate any potential risk of the borrower defaulting on their loan obligation. Hopefully, this 2-part series has been helpful to you! Good luck with your application!
