Getting a Personal Loan in Australia – Part 2 of 2

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

  1. must not be older than 3 months
  2. must show your name
  3. 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!

What You Have to Know Before Applying for Business Loans in Melbourne

Getting a business loan is not an easy process. From finding out which options are available for your business to which of these packages best suits your needs and have the best interest rates, applying for a loan can be quite challenging. That’s why every loan lending entity has an in-house expert to guide you through every step along the way.

There are various reasons for which businesses need to seek loans. Whether it is for purchasing stock, for opening a new store, for a new marketing campaign or due to unexpected expenses, the business will need to prepare a detailed business plan. This will tell the lender everything they need to know about your proposed venture, making it easier for them to advise you about the type of financing that is best suited to your needs. But sitting down with that adviser for the first time and having them lob complex jargon terms at you can make it even more confusing and you might just end up not getting the deal you really wanted. So, this post is designed to ease you in and help you go to that first appointment on a better footing.

Once you’ve come to the decision that your business needs a loan, you’ll need to determine the amount you’ll need to borrow, the type of loan you need and for how long will you will need it. You then have to determine if your business can afford to repay the amount borrowed, including interest and any other additional fees, such as application fees, exit or discharge fees and early termination fees. Try using the online repayment calculators lenders offer on their website to assess your monthly repayments. Consider looking into the type of security you can offer for the loan because most lenders will expect that. In some cases, if the type of security you are offering is satisfactory, the interest rate may even go down.

Depending on the number of times you’ll need to access the borrowed funds, you can choose to go for either an ‘at call’ loan or an upfront loan. ‘At call’ loans are overdrafts or line of credit that you can access to withdraw money even if your account is below zero. It will help keep your business running while waiting for your clients to settle their debts. This type of loan has no fixed terms and the higher the amount borrowed, the higher the fees will be. Additionally, unless otherwise stated in your contract, the lender can demand at any time that you pay back the whole amount borrowed.

For upfront loans, on the other hand, the entire loan amount is made available to the borrower all at once. This is generally the option you’ll want to pick if you are planning on buying a new business or buying equipment for your business. Unlike ‘at call’ loans, upfront loans will require that repayments are made regularly. However, the longer the loan term, the more interest you’ll end up paying. It would be advisable to calculate the repayment amount your business can afford to service so you can determine the amount you can borrow and for how long.

The next thing you might want to consider is the interest rate that will best suit your business. Rates can affect the repayment amount and the total amount paid at the end of the term. Unlike with variable rate loans, with fixed-rate loans, the lender bears the majority of the risks. If you believe your company will be able to pay back the loan even if the rates climb, a variable rate loan may suit you. However, if your business has a low-profit level, you might want to stick with a fixed-rate loan as the predictability of the monthly repayment will help you better manage your cash flow.  

Lenders also offer you the possibility of securing your loan. While you may choose to take an unsecured loan because you don’t have an asset that you can offer as security, these types of financing usually have higher interest rates and are more difficult to get approved. However, secured loans involves offering an asset for the loan. The asset can be a property, such as residential or commercial. In most cases, the more security you provide, the less the interest rates will be and the higher the chances are of getting your request approved.

So essentially, it burns down to:

  • deciding how much you need for your project,
  • calculating what you can actually afford to pay back,
  • choosing between fixed or unfixed rates,
  • and choosing the type of loan security you will take.

You just need to ensure that you will be able to repay your loan on time, so that the lender does not seize the property or asset you offered as security and sell it.