The personal loan market has seen a significant dip from AUD168.5 billion to AUD147.5 billion in the one year from August 2019-2020. This has led to lenders reducing interest rates and making personal loans attractive. However, getting a low interest personal loan can be tricky if you are not aware of the process.
Read this article to understand the steps involved in applying for a personal loan. Armed with this information, you will be better equipped to negotiate the best rates and get your loan approved quickly.
Know What You Need
The first step to getting a personal loan is knowing how much you need and how long it will take you to repay it. There are 2 types of personal loans: fixed interest loans and variable interest loans.
The monthly payments are fixed for fixed interest, while the variable interest loans will have payments pegged to the Central Bank’s interest rates. Therefore, the first step is to understand what type of personal loan you are eligible for.
Compare Rates and Fees
Lenders will boast about low interest rates but charge you higher fees to compensate for their losses. Therefore, you need to compare the interest rates and fees from various lenders to find the cheapest one.
You can begin by looking for local banks and institutions that offer personal loans. Then fill out a few details, such as the amount you need and the period to get quotes from various lenders. Get them to provide you with a breakdown of the monthly payments.
Check Your Eligibility
Lenders have certain criteria that you need to meet before they even review your loan application. While these criteria differ from lender to lender, the most common ones are listed below.
- You should be 18 years or older.
- You need to have a legitimate source of income.
- You need to be an Australian citizen or have a valid visa.
Gather Your Documents
Once you confirm that you are eligible for a low-interest personal loan, you need to gather your documents to submit to the bank. Below is a typical list of documents required.
- ID documents such as a driving license or passport become proof to confirm who you claim to be and proof of age.
- Income proof: This can be your monthly payslips and tax returns. These prove that you have regular income and can repay the loan.
- Savings proof for security against the loan.
- The last three years’ employment details reassure the lender that you are stable at your job.
- Current debt status: With the details of other debt you have, the lender will be able to gauge your ability to make monthly payments.
- List of monthly expenses to discern your monthly surplus to pay EMIs.
- Credit report: This allows lenders to know your payment history and default rate, if any.
Not all lenders may ask for all of these, but it is better to have these documents ready before you get started with your loan application.
Fill the Application
Most large lending institutions have switched to online loan applications. COVID-19 safety protocols have made virtually every transaction possible over the internet so that you don’t have to visit the bank.
Once you have filled the application, send copies of the required documents via e-mail or upload them to the bank’s web portal. Digital signatures work just fine.
Document Verification
Once the bank has all your documents, they will verify the information to confirm its accuracy. Most information is verified online or via phone. This is the most critical part of the loan approval process.
If the bank suspects the fabrication of information, your loan application will not be approved. Therefore, make sure that you do not provide any false documents. It is best to come clean about your financial standing.
Loan Approval
Once the lender is satisfied that all your documents are accurate, they will calculate your income versus expenses and assets versus liabilities. Once these meet the bank’s minimum criteria, your loan will be approved. Most lenders have transparent loan approval processes. They will let you know the reason in case your application is rejected.
Usually, applications are rejected if you have any defaults, overdue payments for 14 days or more, or do not have a steady income. Australian lending laws require that lenders only provide loans to those who are capable of repaying them.
With interest rates on personal loans hitting rock bottom, getting a low-interest personal loan can prove very useful and cheap. However, you must remember to keep all the necessary documents in hand and follow all the steps to make sure you get the best offer.