What requirements need to be met for me to qualify for a loan?
There are always minimum requirements for you to qualify for any kind of loan. These requirements are often similar, though they may differ slightly from lender to lender. The most common basic requirements are:
You are 18 years or older.
You are a permanent Australian resident or hold an acceptable non-resident visa.
You have a regular income.
You can provide details of your current financial situation, including pay slips, bills and everyday expenses.
Many lenders offer borrowing calculators on their websites to give you an idea if you’re eligible. These also provide an estimated amount of how much you are able to borrow.
What is the interest rate associated with a loan?
As stated previously, the interest rate associated with a loan is entirely dependent on the type of loan you require. Ideally, you want to aim for the loan that can offer you the lowest possible interest rate. For example, if your loan is secured with an asset, the rate will be lower than a loan which is unsecured.
What are the fees associated with a loan?
Depending on which type of loan you apply for, different fees may be associated. Fees to look out for include:
Lending fees
Early exit fees
Early repayment fees
Insurance fees
Withdrawal fees
Servicing fees
Ensure you take time to consider these fees to avoid any unnecessary or unexpected costs.
What is the length of the loan?
Loan terms can range from 1 – 30 years in length. The term of your loan will determine your repayment amount and the amount of interest you end up paying over the life of your loan. The shorter the loan, the higher your repayments and the lower amount of interest you will incur.
Most financial institutions have repayment calculators available, which allow you to estimate these figures for your desired loan amount.
How do you plan to pay off the loan?
This point may seem quite obvious, but it is a very important thing to consider when taking out a loan. For example, are you planning on making weekly, fortnightly or monthly repayments? Do you plan on making additional repayments towards the loan? Will your current financial situation remain the same over the period of the loan?
It’s always important to plan forward to ensure that you are going to be able to easily afford the loan.
What is your current credit rating?
Most lenders look at your credit score and report. This gives them an insight into how you manage borrowed money. A poor credit history indicates an increased risk of default, which will prevent many banks from lending you the required funds.
The higher your credit rating, the better. Lenders don’t usually disclose minimum credit score requirements, though for the best chances of success, aim for a score in the 700s or 800s. There are a multitude of free credit report tools available on the internet, which allow you to check your credit rating.
Collateral value
The value of your collateral often determines the amount of money you can borrow. For instance, if you take out a personal loan and utilise your $30,000 car as collateral, you may be able to borrow more money, as your lender would have assurance that the loan money can be recovered if you default on the loan. Always remember that even with collateral, you should never borrow more than you can afford to pay back.