If you’re in a situation where you need a little bit of extra cash, a personal loan is always an option. Say you’re looking to fund a one-off event like a wedding or holiday, or you’re looking to make a big purchase like a car – personal loans are available for all of the above.
For some potential borrowers, however, there’s a healthy fear of rejection fuelled by a spotty credit history or even a lack of personal funds. So, if this sounds familiar, what can you do to improve your chances of getting the green light?
What are the common reasons for loan rejection?
Two stand out. A poor credit history is the most common, according to the Australian Securities and Investments Commission, and overdue payments of 60 days or more show up on your credit report. The second is capacity: not enough income to cover repayments, and not enough savings behind it.
Are you worried that if you go in search of low-interest loans, you’ll come up empty? Based on insight from the Australian Securities and Investments Commission, the most common factor is a poor credit history. For example, if you’ve had overdue payments of 60 days or more, this will show up on your credit report.
Additionally, lenders are going to be hesitant if they think you don’t have the means to repay the amount you’re borrowing. If you aren’t earning enough income to cover your loan repayments, and you don’t have enough savings either, that will definitely bring up red flags.
How can you improve your chances of approval?
There are routes beyond the standard requirements. You can offer another asset as collateral, such as your house or car, or ask a parent or partner to act as guarantor. Both are risky: defaulting could cost you the house, or pull a family member’s finances down with yours.
For borrowers who are worried they might not meet the traditional requirements to obtain a personal loan, there are other options available. For example, you can use another asset as collateral to give you additional security, such as your house or car. You may also want to have a parent or partner as a guarantor to support your loan application.
These are risky strategies, though. You don’t want to lose your house by defaulting on a loan, nor do you want to jeopardise the finances of a loved one by including them in a risky financial choice. It’s worth taking a moment to assess your finances and the loan interest rates available to you before you make any bold moves.
Which type of personal loan should you choose?
It depends on what the money is for and what you can service. Personal loans come secured or unsecured, at fixed or variable rates. Working out which of those combinations fits your situation is what a broker is for, and it is worth doing before you apply.
There are many options out there for Australians who pursue personal loans – including secured and unsecured loans, fixed and variable rates and so on. What’s the best choice for you? Our team of brokers can help you figure that out.
We have a team of specialists available who can find the ideal financial package for your situation. Contact us today.