Beginners guide to loans


A loan is a sum of money that is expected to be paid back with interest.  Traditionally, loan applications were made in person at storefronts. The advancement of technology has enabled credit providers to accept loan applications online and make approval decisions within a matter of minutes. There are a variety of loan types on the market, each having different qualities that meet a specific clientele. Loans are now available through traditional banks and non-traditional credit providers

What is important to consider?

Firstly, before taking out a loan, it is important to consider whether you are confident you will be able to repay the lender. If you feel you will not be able to pay back any amount of money you borrow, we strongly advise not taking out a loan. You can use the Money Smart loan calculator to help here.

If you are confident you will be able to meet repayments, you will need to decide what you need the loan for and how much you need to borrow. There are a number of loan types on the market with each one tailored to a specific need. For example, if you are in need of a small amount of money for a short period of time, a short-term loan may be the best option. However, if you need a larger amount of money, e.g. $10,000 to make home improvements, a personal loan will be more suitable.

Once you have decided on the type of loan, you will need to think about exactly how much money you need to borrow and how long you think it will take you to pay it back. Lender fees and interest rates will vary depending on a number of factors but, as a general guideline, the loan amount and loan term act as a gauge on how much each repayment will be. Lenders typically provide loan calculators for you approximate how much the general repayment amount will be. Ensure you select an amount that you are able to repay.

After deciding on the amount of money you want to borrow and a loan term that works for you, it is a good idea to research the market to find trusted lenders with competitive interest rates. You can use Friendly Finance comparison tables to compare Short-TermPersonal and Car Loan providers. Once you have found a lender, and have checked you meet the minimum criteria to be eligible for a loan, you can click through to the lender’s website to begin your loan application.

How do I take out a loan?

Applying for a loan is a quick and seamless process. The majority of credit providers offer online application forms that take a few minutes to complete. In most cases, you will need to provide personal information, employment details and bank details in order for the lender to verify your identity and make an affordability decision. You are likely to receive an instant pre-approval decision with most credit providers. If you are pre-approved, receiving your funds will be conditional to supplying the lender with additional documentation. For example, short-term lenders will ask you for your last 90 days worth of bank statements. This is also a simple process with most lenders using trusted third party platforms to automatically collect the data with your approval.

What will affect being approved?

Each lender will have unique approval criteria. As a rule of thumb, you will need to be a permanent resident of Australia, over 18 years of age, employed with a regular source of income, and have an active bank account to be considered for a loan.

Lenders will run a credit check on you during the decision process meaning your credit rating will be an influential factor in your approval chances. Your credit rating is an approximation of your ability to fulfil financial commitments, based on your previous financial behaviour. If you have a bad credit rating you are less likely to be approved for larger loan amounts. Small loan ‘short-term’ lenders place less emphasis on credit rating as they are more concerned with your current situation rather than your financial history

How do I get my money?

If your loan application is successful, it is likely your lender will electronically transfer the money to your bank account. The time it takes for you to receive the loan will depend on the lender, the loan type and your banking institution. For example, if you apply before 3 pm for a short-term loan you could receive the money the same day. A larger personal loan may take a few business days for the funds to be transferred.

Making repayments?

Repayment amounts, frequency and dates will be outlined in your loan agreement. We strongly advise you fully review your loan agreement prior to signing for your loan. Loan repayments will likely be automatically deducted from your bank account via a direct debit set up with the lender. Your only concern will be to ensure you have enough funds in your bank account for the repayments to be made.

Struggling to make repayments?

If you are struggling to make loan repayments you need to contact your lender immediately. Most lenders will work with you to help you successfully pay back the loan, however inability to make the repayments can lead to additional fees, contact from debt collectors, a negative effect on your credit rating and, in some cases, legal action.

Legal information

Marketplace Finance Pty Ltd with ACN 608 607 227 and ACL 487316 is trading as Friendly Finance. Friendly Finance does not make finance or credit decisions and is not a provider. Friendly Finance helps customers find financial partners that meet their requirements.Financial partners may wish to obtain credit reports as part of the decision process. The line of credit available will vary depending on the financial provider. In order to help the government fight identity theft, the funding of terrorism and money laundering activities, providers may verify and record customer information. This website does not directly endorse a particular product and service.Any information on this website should be taken as opinion only.