Have you ever wondered what happens once you hit submit on a personal loan application? Wonder no more, as I explain some of the key steps and how to improve your chances of having a personal loan approved.
It can be frustrating when you apply for a personal loan and get declined for, seemingly, no good reason. You have assets and a job that pays well enough for you to meet your repayments, so what’s the problem?
While every lender is different, here are some of the steps involved in assessing your personal loan application and a few tips on how you can help improve your chances.
Lenders know who they want as a customer, so one of the first things they will do is an initial eligibility check of things like your employment status, if you are an Australian resident and affordability. If you are unemployed, or can’t comfortably meet the repayments with your income, it’s really unlikely that you will meet the lender’s credit criteria.
Credit scoring and knowledge
Once you have passed the eligibility check, the lender will make a call out to the credit agency / bureau they use which will give the lender your credit score. Credit scores are an indication of your credit worthiness in the eyes of credit providers. Things like having lots of credit accounts, poor repayment history, defaults, etc., can negatively impact your credit score.
Credit providers use a person’s credit score to help assess the risk of lending money, as it’s used as an indicator of the likelihood of them repaying their loans. Ultimately, if a lender thinks the applicant won’t be able to pay a loan back, they won’t get approved.
Lenders also want to know if they know you and if you are who you say you are. There are lots of big databases and computer power behind this and that’s how the decision is made.
TIP! If you’re getting declined you need to check your credit file. This is something you can influence by accessing your credit score, looking at what’s on your credit file and trying to address or fix defaults or late payments and get issues removed from your file.
The lender then makes a decision on conditional approval, refer or decline. Refer is when you are close to approval but not quite there, and the lender thinks that if they knew more about you, whether that’s through extra documentation or if you offered security for your loan, then maybe they could approve you. Or, maybe you asked for $50k but they would only lend $40k. At this stage someone will generally get involved and look at your application and make some credit decisions about your application.
TIP! If a lender won’t accept your application for an unsecured loan, they might accept your application for a secured loan. If you have a car or another valuable asset that you can confidently offer as security, it might be a way to get approved and even potentially at a lower interest rate.
If your loan is conditionally approved or referred you are then asked to provide more info and evidence. This is generally through an online upload of documents like payslips, ID, any evidence or information on an asset being used for security, etc.
Final approval or decline
Customer settle or decline
This is your chance to either accept what you’ve been offered and move to settlement of your personal loan, or decline it.
If you found this useful, you might also want to check out our insider secrets on getting your personal loan approved.
If you got approved for a $5000 personal loan, how would you spend it – travelling, buying a car, consolidating debts or something else? Tell us in the comments below.
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