Important tips to understand before you apply for a personal loan
Is this your first application, or are you ready to apply again after being unsuccessful in the past? Regardless of your situation, by understanding what lenders look for is worthwhile knowing before you apply. If you have been declined in the past, make sure you understand the reason why you were declined. By knowing what the cause was means you can work towards rectifying it and hopefully prevent your application from being declined again. Below we have outlined the most common reasons personal loans are declined and ways you can address them.
Excess Financial Commitments /Affordability
If you have very little money left after all your loans, bills and expenses are taken out each month it means that a new loan repayment will prove even harder to manage. You should do a budget and understand where your money is going. There are many free budgeting tools available online. If you struggle with budgets, the Government provides free independent financial counsellors to assist with managing debts and bills. They can be contacted from anywhere in Australia on 1800 007 007. Take control of your income and expenses, and if you are in need of a loan, find out what the repayments would be for the new loan and make sure you have enough income left to comfortably cover it before you apply.
Your Credit Report Has Negative Listings
If your credit history/report is the reason why your loan was unsuccessful, or you are unsure as to what is on your credit report, the first thing you should do is get a copy of it to understand what lenders can see about you. Either ask the lender who has just declined you for a copy, or otherwise you can obtain a free copy from Veda Advantage. Click here to arrange. Your report shows your name, date of birth, current and previous addresses and employment details along with any loans/agreements you have applied for, if you have missed or been late with repayments, and any judgments or bankruptcies you’ve had. There are a number of negative things that can cause a loan to be declined such as:
Excessive Enquiries: If you apply to lots of different lenders (called shopping around) this will show up on your credit report and generally lenders will decline you. It’s good to compare lenders but DON’T complete the application form until you are comfortable you meet their lending guidelines. Read their website and even phone them. If your report does have excessive enquiries, then speak to the lender, show them your credit report and ask them how long you should wait before they would be comfortable in assessing another application from you.
Defaults/Judgments: If you have any of these types of entries on your credit report, it means you have had a loan or an agreement that was not conducted correctly. Every lender is different as to what defaults/judgments they will accept and allow, and which ones they won’t. If you have these types of listings you should speak to lender first and ask them what their policy is and how long you should wait before applying again.
Bankruptcies: If you have been bankrupt, this will be reflected on your credit report. How long ago it occurred and why are important details as there are lenders that can still consider such applicants whilst others lenders won’t. For example, at Fair Go Finance we can consider an application from a bankrupt applicant as long as it happened a minimum of 12 months ago.
Bank Account Conduct
Lenders ask to see your bank statements for a number of reasons, one of which is to see how responsible you are with managing money. If you are constantly having overdrawn notice fees, or direct debit dishonours, this means lenders will be particularly cautious as you may conduct a new loan in a similar unreliable way. Look at your bank statements and the way your money goes in and out. Out of control gambling, debits to lenders that you have not mentioned on your application and lack of regular income can combine to prevent a lender offering you a new loan. If your bank account conduct is questionable, do a budget and become diligent with tracking your money. By getting it in order for 3 months can be enough for certain lenders to reconsider your application.
Not Enough Valid Documentation/Income
All lenders have certain verification processes, especially with identity and income documentation. If you cannot provide enough valid paperwork, a lender cannot offer you a loan. A common misconception is that cash-in-hand income should be acceptable. In no way is this type of income allowed, in fact it is illegal. It means you are not paying tax and therefore are breaking the law. Before you apply for a loan you should make sure you have all the correct supporting documentation the lender requires, and this can be found by either looking at their website or contacting them directly.
Outside of Lending Criteria for Employment/Income
All lenders have policies on what employment types and income types are acceptable. At Fair Go Finance we have a minimum weekly income requirement of $500, and cannot accept applicants solely on Centrelink benefits. For employment, many lenders vary regarding probation periods and lengths of time for casual and self-employed applicants. If you are on probation, are casual or self-employed always check with the lender first to make sure you meet their requirements. You may only need to wait a short time before you become eligible to apply.
Outside of Lending Criteria for Residential Criteria
You need to provide enough proof of where and how long you have lived somewhere. If you can’t or are behind in your rent, your lender may not feel comfortable in providing you a loan. Make sure your rent is up to date, and you can show your residential stability by providing a utility bill that confirms your name and address.
Loan Is Deemed Not Suitable
All lenders have a credit licence, and must abide by lending rules. One rule is that a loan cannot be offered if the amount does not suit the loan purpose. To explain this, if you applied for $5000 to repay a debt, but on assessment it is determined you can only afford a loan for $2000, then it does not suit the purpose and could potentially put you in a worse financial position (by now having two loans). Lenders must never put a client in such a position, so in these situations the loan will be declined.
1. Talk to the Lender Before you Apply Again
When you want to apply for another loan, we recommend you speak to the lender if you feel uncertain whether your loan may be declined again. All lenders should have a customer service area, and it is far better to discuss your concerns first, rather than applying and having another credit enquiry listed on your credit report.
2. Be Honest and Open
It is not worth trying to mislead a lender, as they do have a number of checks they do to verify your income, identity and current financial debts. Be upfront with everything, and if your loan cannot be approved now, the lender can hopefully provide you with a guideline as to how long it may be before you should apply again.
3. Have the Necessary Paperwork
You will always have to prove who you are, what you earn and where you live to a new lender. There is no point applying for a loan if you are not prepared, or cannot provide, the necessary supporting documents the lender needs. If you are unsure, speak to the lender or check their website for what they require.