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Loans in Australia

How to Qualify for an Unsecured Personal Loan

By December 6th, 2023No Comments
How to Qualify for an Unsecured Personal Loan

Disclaimer: This content does not constitute financial advice. The article below is for the readers’ information and education only. The writers at Friendly Finance are not financial advisors and are therefore not authorised to offer financial advice. Friendly Finance recommends our readers to always do their research and seek independent advice as needed.

Unsecured personal loans can be a bit tricky to secure because they don’t require you to put up any collateral. But in today’s world, where having financial flexibility is super important, unsecured personal loans can be a real lifesaver.
Whether you’re dreaming of a vacation, trying to pay off high-interest debts, or dealing with unexpected bills, these loans can give you the money you need. But the big question is: How do you qualify for one?
The world of personal finance can be a bit confusing, and getting an unsecured personal loan can be a challenge. Lenders are cautious because they rely a lot on your credit history to decide if they should lend you money. But fear not! This article is your guide to getting that loan. We’ll walk you through the important things you need to know, the steps to follow, and some tips to improve your chances of getting approved. So, let’s dive into this financial journey together and learn how to get an unsecured personal loan, hassle-free.

What is the largest unsecured loan I can get?

In Australia, the largest unsecured loan you can get is typically up to $70,000. However, some lenders may offer larger loan amounts of up to $100,000 or more.

The amount of money you can borrow will depend on your circumstances, including your credit score, income, and expenses. When lenders decide how much money to lend you, they consider several important things.

What factors affect your loan eligibility?

Your Credit Score

If you have a good credit score, it makes you look more attractive to lenders because you appear to be a low risk borrower. This increases your chances of getting a loan with a lower interest rate.

Your Income and Work History

Lenders want to make sure you earn enough money to comfortably pay back the loan every month. They also check your spending to see if you have money left over after paying your essential bills. Your work history matters too. Lenders like it when you have a steady job and a history of paying back loans on time. This shows them that you’re responsible.

Your Existing Debts

Lenders want to know that you don’t already owe too much money because that could make it hard for you to handle more debt.

Required Documents for an Unsecured Personal Loan in Australia

To apply for an unsecured personal loan in Australia, you’ll need to provide specific documents and meet certain criteria. Here’s what you should know:

  • Identification: You’ll typically need to provide a valid passport or driver’s license to confirm your identity.
  • Verification of Address: Lenders will require proof of your address, which can be verified through utility bills, recent mail, or a rent/mortgage statement.
  • Proof of Income: Demonstrating your ability to repay the loan is crucial. You can do this by providing pay slips, the last 90 days’ bank statements, or tax returns.

Additional Information That May Be Requested:

  • Medicare Number: Some lenders may request for your Medicare number as part of the application.
  • Monthly Debt Obligations: You might need to disclose your monthly financial commitments, such as rent, pre-existing loans, or credit card debt.
  • Gross Income: Your total income before deductions, including salary and any other sources of income.
  • Employer Details: Lenders often ask for your employer’s name, work address, and phone number to verify your employment status.
  • Contact Information: You’ll need to provide your email and phone number for communication during the application process.
  • Previous Addresses: Information about your previous addresses may be required for background checks.
  • Date of Birth: Your date of birth is necessary for identity verification.

Once you’ve gathered these documents and information, you’ll need to specify the loan amount you want to borrow and the loan duration, which typically ranges from two to five years. Keep in mind that the longer it takes to repay the loan, the more you’ll pay in interest, so it’s advisable to borrow only what you need to keep your costs as low as possible. Please note that specific requirements may vary among lenders, so it’s a good idea to check with your chosen lender for their exact application criteria and document requirements.

Your Credit Score is Important

In Australia, your credit score significantly influences your chances of getting approved for an unsecured loan and the interest rates you’ll be offered. Here’s how your credit score affects the probability of approval:

  • Higher Credit Score, Better Approval Odds: Lenders are more likely to approve loan applications from individuals with higher credit scores. A strong credit score is indicative of responsible financial behaviour, making you a more attractive borrower. On the flip side, lower credit scores may lead to loan application rejections.
  • Impact on Interest Rates: A respectable credit score can help you secure lower Annual Percentage Rates (APRs) on unsecured loans. Borrowers with excellent credit scores typically receive more favourable interest rates, which can lead to lower overall borrowing costs. Conversely, borrowers with lower credit scores may face higher interest rates, increasing the total cost of the loan.
  • Other Factors Considered: While credit score is a crucial factor, some lenders in Australia may also consider additional factors when making underwriting decisions for unsecured loans. These factors may include your job history, employment security, and earnings potential. Borrowers with average credit ratings still have access to loan options, but they may encounter slightly higher interest rates.

To enhance your chances of approval for an unsecured loan, it’s essential to maintain a good credit score. Regularly monitor your credit report, pay bills on time, and manage your credit responsibly. This will not only increase your likelihood of loan approval but also help you secure more favourable terms when borrowing without collateral.

Compare Online Lenders for Unsecured Personal Loans

Harmoney

Harmoney offers unsecured personal loans to borrowers with a credit score of at least 660. The loan amount ranges from $2,000 to $70,000, with a 3-5 year repayment term. The interest rate is fixed and ranges from 5.35% to 19.09% per annum, depending on the borrower’s credit score. There is also an establishment fee of $275 for loans up to $5,000 and $575 for loans of $5,001 or more.Here are some of the key features of Harmoney’s unsecured personal loan:

  • Loan amount: $2,000 – $70,000
  • Repayment term: 3-5 years
  • Interest rate: 5.35% – 19.09% per annum
  • Establishment fee: $275 for loans up to $5,000, $575 for loans of $5,001 or more

Pepper Money

Pepper Money offers an unsecured personal loan with fixed interest rates ranging from 6.75% to 21.50% per annum. The loan amount is available from $5,000 to $50,000 and the repayment term is between 18 and 84 months. The funds will be released the next business day after approval. You can repay the loan by direct debit in weekly or fortnightly instalments. This loan does not charge any fees, including loan establishment fees, account administration fees, and early repayment fees.Here are some key features of the Pepper Money’s unsecured personal loan:

  • Fixed interest rates: You will know exactly how much interest you will pay each month.
  • No fees: You will not have to pay any additional fees for this loan.
  • Early repayment allowed: You can repay the loan early without penalty.
  • Quick approval process: You can get approved for the loan in as little as 10 minutes.

SocietyOne

SocietyOne offers unsecured personal loans to borrowers with a credit score of at least 660. The loan amount ranges from $5,000 to $50,000, with a repayment term of 2, 3, or 5 years. The interest rate is variable and starts from 9.20% p.a., depending on the borrower’s credit score. There are no fees associated with this loan, such as an establishment fee or an early repayment fee.Here are some of the key features of SocietyOne’s unsecured personal loan:

  • Loan amount: $5,000 – $50,000
  • Repayment term: 2, 3, or 5 years
  • Interest rate: Starts from 9.20% p.a.
  • No fees: No establishment fee or early repayment fee

MoneyMe

MoneyMe offers unsecured personal loans of up to $50,000. You can apply for the loan online and get approved in minutes. The loan can be repaid over 3, 4, or 5 years. The interest rate is variable and ranges from 9.20% p.a. to 25.20% p.a., depending on your credit score.

To compare personal loans, you can use a comparison rate calculator. A comparison rate shows the total cost of the loan, including the interest rate and fees. You should compare comparison rates from different lenders to find the best deal. Here are some of the key features of MoneyMe’s unsecured personal loan:

  • Loan amount: Up to $50,000
  • Repayment term: 3, 4, or 5 years
  • Interest rate: Variable, from 9.20% p.a. to 25.20% p.a.
  • No establishment fee
  • $10 monthly account fee
  • Early repayment fee: 2% of the outstanding amount

FairGo Finance

FairGo Finance offers unsecured personal loans ranging from $500 to $10,000. These loans do not require any security or collateral, so you do not have to put up any assets as a guarantee. The application process is quick and easy, and you can get a conditional decision almost instantly.

The interest rate for small amount loans (up to $2,000) is not published on their website, but the interest rate for medium amount loans (from $2,050 to $5,000) is between 19.90% and 29.90% per annum. There is also an establishment fee of $60 to $400, a monthly fee of $15 to $80 for small amount loans, an establishment fee of $437 to $771 and a monthly fee of $10 to $14 for medium amount loans.

The comparison rate for small-amount loans is also not published on their website, but the comparison rate for medium-amount loans is between 33.49% and 67.82%. The comparison rate is a more accurate way of comparing the total cost of a loan, as it includes the interest rate and fees.Here are some of the key features of FairGo’s unsecured personal loans:

  • Loan amount: $500 – $10,000
  • No security or collateral required
  • Quick and easy application process
  • Almost instant conditional decision
  • Interest rate: 19.90% – 29.90% p.a. for medium-amount loans
  • Establishment fee: $60 – $400 for small-amount loans, $437 – $771 for medium-amount loans
  • Monthly fee: $15 – $80 for small amount loans, $10 – $14 for medium amount loans
  • Comparison rate: 33.49% – 67.82% for medium amount loans

Things to Consider When Applying For a Unsecured Loan

When applying for an unsecured loan, it’s crucial to be vigilant about the terms and conditions to avoid potential pitfalls. Here are some key considerations:

  • Review the Fine Print: Thoroughly examine your loan agreement to ensure you understand all terms and conditions. Ignoring the fine print can lead to unexpected issues down the road.
  • Prepayment Charges: Check if the lender imposes prepayment charges or exit fees. Many online lenders do not charge such fees, but it’s essential to confirm this before applying. Look for the “no prepayment penalty” clause in your loan terms.
  • Automatic Payments: Some lenders may require automatic repayments from your current account. Ensure you maintain sufficient funds to cover these payments to avoid overdrawing your account, which can result in overdraft fees. Consider setting up low balance alerts with your bank to prevent this.

Additional Considerations:

  • Interest Rates: Understand the interest rates associated with the loan. Rates can significantly impact the overall cost of borrowing. Compare rates from multiple lenders to find the most competitive option.
  • Loan Amount and Term: Determine the amount you need to borrow and the repayment term that suits your financial situation. Be cautious about overborrowing, as it can lead to unnecessary debt.
  • Hidden Fees: In addition to prepayment charges, be aware of any hidden fees, such as application fees or origination fees. Clarify these costs with the lender.
  • Loan Purpose: Ensure that you have a clear purpose for the loan and that it aligns with your financial goals. Avoid taking out loans for non-essential expenses.
  • Repayment Plan: Establish a repayment plan that fits your budget. Missing payments can lead to late fees and negatively impact your credit score.
  • Default Consequences: Understand the consequences of defaulting on the loan. Defaulting can lead to legal action and damage your credit.

By carefully considering these factors and thoroughly reviewing your loan agreement, you can make informed decisions when applying for an unsecured loan, reducing the risk of unexpected financial challenges.

Final Advice

When you’re thinking about getting a personal loan, it’s crucial to be cautious and do your homework before making any commitments. One of the first things you should do is explore all your options thoroughly. Take the time to check out different lenders and what they offer in terms of loan terms, interest rates, and any additional benefits.

Don’t rush into a decision; make sure the loan you choose aligns with your specific needs. Keep a close eye on interest rates because they can significantly impact how much your loan will cost you in the long run. Look for lenders that provide competitive and reasonable interest rates. This will help you keep your borrowing expenses as low as possible.

Another important tip is to be prudent about the amount you borrow. It can be tempting to take out a more substantial loan than you need, but this can lead to unnecessary debt. Only borrow what you genuinely require to cover your expenses. Last but not least, commit to repay your loan on time. Late payments can result in extra charges and can also harm your credit score. So, always prioritise meeting your repayment deadlines.

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