Personal Loan Approval
How Personal Loans Work
The general principle of a personal loan contract state that the lender will give the money to the borrower and they can then buy whatever they want with it. The customer in return has to make regular repayments, which includes any fees and interest calculated at the agreed upon rate, to the lender.
There is a major difference in how lenders treat unsecured personal loan and secured personal loan. For secured personal loans the lender will require an asset that you own to be written into the contract as security for the loan. This means that the lender can sell the asset if you do not keep up with the regular repayments. You may also have to pay the difference between what the lenders sells the asset for and the remaining loan amount, as well as selling and legal costs.
For unsecured personal loans you will still retain the asset if you have trouble making you regular repayments. However this doesn't mean that the lender will let the borrower simply default on the loan. Most finance companies will begin legal proceedings to recover the amount of the money owed if the customer fails to meet the repayments.
The loan is finished when you have paid back the entire amount that you have borrowed. At this point the lending company will remove any interest that they had in your assets if you took out a secured personal loan.
Steps For Personal Loan Approval
In order for your personal loan application to be approved there are some procedural steps that you should undertake. Nearly all of the personal loan lenders who operate in Australia follow the same steps, so it is a good idea to familiarise yourself with them so that the approval of your personal loan can proceed quickly.
- The first step is something that you should do before you apply for a personal loan, and this is obtain a copy of your credit history report. All lenders will look at this report and it is vital that you also know what is on it. Sometimes there will be a bad mark on the report that you have completely forgotten about or don't even know about. With this report in you hand you can try to have any bad marks removed before you apply for the loan. If you can't do this then you should have a good explanation for each bad entry when the lender asks you about it.
- You should do a little bit of research on what it is that you want to buy before you try to get a personal loan. This way you will know roughly how much you need to borrow as well as knowing if it is something that you can actually afford.
- Next starts the process of finding the right loan product for your needs. If you do some research on all of the lenders and loan products on the market you will be able to find one that suits your requirements. For instance ask yourself do you want a secured personal loan with a lower interest rate or an unsecured loan? Which lender has the best interest rates and are their conditions acceptable?
- The next step is to either apply for the personal loan online, in person or over the phone. You will be required at this stage to provide lots personal information about yourself.
- Next the finance company will require you to provide comprehensive information about your financial situation, which will include details about your assets, liabilities, wages, savings and living expenses.
- The finance company may ask you to send them copies of all the relevant documents to prove that you have not given them false information.
- The final step in the loan approval process is to actually sign and return the loan contract documentation to the finance company.
- You will then be able to go shopping and spend your borrowed money on whatever it is that you want to spend it on. You may even have more bargaining power because you have already got your personal loan pre-approved.
Reasons for Rejecting Personal Loans
When you are trying to get approval for a personal loan in Australia there are a number of reasons why it might be rejected. Understanding how the approval process works in one good way to prevent this from happening. Another great way is to recognize the most common reasons for loan approval rejections and then tailor your particular application to ensure that you can be almost guaranteed personal loan approval.
- You have no credit history. It is possible in this situation to apply again with a guarantor who will help to secure the loan for you.
- You have too many bad marks on your Credit History Report.
- You employment is classed as unstable or you havn't worked long enough in the same job.
- Your current income less all of your living expenses is insufficient to be able to make the loan repayments.
- For secured personal loans you don't have large enough assets to act as security for the loan.
- You already have to many loans and your debt level is too high.
- If you have filed for bankruptcy before then you may not be approved.
How Long Does Personal Loan Approval Take
You will find that in Australia approval of a personal loan can vary from a few hours right through to a few days. In some rare cases you may even be able to get instant personal loan approval. Actually the length of time that it takes to get approval will depend on how thorough the information that you provide is and whether or not that information places you in a high or low risk category. Generally the lender will put the money into your loan account within a day or two after your personal loan is approved and signed.
Differences Between Personal Loan Lenders
You will find that most of the personal loan lenders in Australia are similiar. When you look carefully, though, you will discover that there are significant differences that on certain aspects, which means that you must choose wisely to get the one that is best for your needs.
- There are many good and bad differences between the various types of lenders. For instance bank lenders will offer competitive rates but may have strict criteria, credit unions are more flexible and finance brokers can get you a good deal but you must check out how they are paid for their recommendation. So take your time and select a lender that is appropriate for your particular needs.
- Keep in mind that many bank lenders and personal finance companies will advertise a low rate of interest but foget to mention about all the ongoing fees and monthly charges. So read the fine print of the contract because this is where you will find the real differences between lenders.
- If you have a bad credit history, are self employed or work irregular hours then you may find that there are only a few lenders who want to give you money for a personal loan.
- It is a good idea to read up on the lenders policy for handling defaults or missed loan repayments. You don't take out a loan thinking that you may have trouble paying it back, but you never know and this is and area of significant differnce between the various lending companies.
- Banks, credit unions and finance companies all price their personal loan rates differently. For instance some leners will offer a discount based on the asset that is being bought or the amount that is being borrowed. On the other hand the big 4 banks will rarely provide a discount off their advertised rate, but instead provide an air of security because they are such large institutions.
- Also look for a difference in the way that some lenders structure their repayment schedule. For example one lender may look better because it has lower repayments throughout the course of the loan but then they have a large final payment (often called 'balloon payments') which often catches people off guard. It is important that you look for these things, because while some people may regard this feature as a positive other people will not.
If there is some loan terminology or abbreviation that you are unsure about the meaning off then you can check out the personal loan terminology page, which has a detailed explaination about some of the more confusing aspects of getting a personal loan.
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