Are you looking to apply for a personal loan to take care of personal or family needs? Not sure how to go about it? Safrock might be able to help!
In this article, we’ll look at the important things that need to be done to prepare yourself and submit an application for finance. The different types of loans available and eligibility requirements will also be reviewed.
What is a personal loan?
A personal loan can be a loan you take from a financial institution; such as a bank. You must repay the loan and interest on the loan over an allocated period of time. This period of time is usually determined based on your individual situation and how much you may be able to reasonably afford.
If your application is approved by a lender, remember to read your loan contract thoroughly, as it will contain all relevant costs.
Types of personal loans
If you are contemplating applying for a personal loan, there are two types of loans you can choose from. These include:
Secured personal loans
The financial institution will demand collateral when taking a secured personal loan. The personal assets you can put down for security may be your bike, car, boat, caravan, ute, or any other valuable asset. If you fall significantly behind and are unable to make repayments, the lender will take over your asset and put it up for sale to recoup their money.
Lenders use this to protect themselves from losing money to defaulters.
The most common types of secured loans are:
Car loans: If you take a car loan, you are using the car as the security. You may lose your vehicle if you don’t make regular payments when they are due.
Title loans: Paid-off vehicles are usually used as collateral for title loans. In this instance, you would use a car, asset that you already own (or have ownership of). This asset must be in your name in order to be used as security on a personal loan. You cannot use the car you’re buying to secure the loan.
Features of secured personal loan
A secured personal loan has some characteristics that define it. These include:
- Collateral is a must: This makes this loan type secured. Your collateral acts as security for the loan and will pay off the loan if you default. If you don’t have collateral, you cannot access a secured personal loan.
- Large loan amount: Secured loans can improve your chances of being approved for a large loan amount. Lenders can secure the borrowers’ loan against an asset if a larger sum of money is involved, particularly if the applicant has poor or no credit history.
- Lower interest rate: Secured loans attract lower interest rates. This is different from an unsecured personal loan. This means you pay less interest than you would if you take the same amount as an unsecured loan.
For a secured loan, the smallest amount you can borrow from a lender is typically from $2,500 to $25,000 and the repayment period will depend on the amount you choose to borrow.
Unsecured personal loans
The unsecured personal loan has more relaxed conditions. As a borrower, the lender doesn’t demand collateral from you. The lender considers your repayment ability before they grant your application. This is because you don’t give security before taking the loan.
This loan type is available to potential borrowers who need small amounts of money. They can use the loan to solve some minor financial challenges. It is not ideal for large and capital-intensive projects.
In a lot of cases, borrowers must have an impressive credit score before they apply for this loan. Adults who have a low credit score or young people with no credit history are usually not eligible for this type of loan. This is because their repayment ability cannot be assessed. Safrock will take a look at whether they can match you with a lender or not. You may be surprised. Some lenders may be able to offer you a bad credit personal loan by looking at your current relationship with money rather than focusing on your credit history.
Below are some typical examples of unsecured personal loans:
Student loans: The first eligibility for this loan is being a student. The goal is to help students pay their way through school. Especially if their parents can’t afford to sponsor their education. You don’t need collateral to take this loan, although your credit score will play a role in your loan approval.
Credit cards: Credit card companies don’t take any form of security when giving out cards. This makes it an unsecured loan type.
Borrowers can get a loan amount as small as $1,000 for this loan type.
For more info on personal loans, take a look at the ASIC MoneySmart website.
Features of unsecured loans
Unsecured loans have some unique features. Some of them include:
- No collateral: An unsecured loan doesn’t need collateral.
- Small amount: If you need a large sum of money for a project or want to buy a large asset, an unsecured loan won’t cover it. Since you don’t have collateral, the financial institution will only give you small loans.
- High-interest rate: This type of loan attracts higher interest rates than secured loans. If you don’t have collateral, be ready to pay more in interest.
Where can you get a personal loan?
When you are thinking of getting a loan, a bank may be the first lender that crosses your mind. But, you need to know that banks are not the only financial institutions that give out personal loans. You can also get a loan from consumer finance companies and credit unions. Peer-to-peer lenders and online lenders are other options to consider as well. These are some viable alternatives to banks for individuals who need personal loans.
What can you use a personal loan for?
You can take a personal loan for a wide range of financial needs. If you find yourself in need of money to solve one or more of the below problems, you may consider taking a loan.
#1 Medical bills
Medical bills may be an important thing you can choose to pay with a personal loan. If you or a family member need urgent medical care, a personal loan could help you pay the bills.
#2 Debt consolidation
Debt consolidation is one of the most common ways of using a personal loan. Do you have several unpaid loans and your lenders are breathing down your neck? A personal loan may be the best option to repay the loan. You may find yourself in a big financial mess if you don’t pay loans, especially as interest rates increase.
You might combine all your loans and take out a single loan to pay them off. By doing this, you only have to focus on a single personal loan. Making a monthly payment will be easier than making several at different times of the month. Once you have an idea of the monthly payment, it is easier for you to find a way to repay your debt without defaulting.
#3 Home remodeling
Is your home looking outdated? Does it need a new roof? If you notice some issues with your home, a personal loan can help. These are particularly handy when the issue requires urgent attention. They can also help if you don’t have the budget for fixes at the moment.
You can also use it to install solar panels. You may use the loan to fix some issues such as leaking pipes and bad doors among other things.
If you are a victim of a natural disaster like floods, you may need to fix your home as soon as possible. The flood may have damaged your water heater, furnace, and other vital items. A personal loan can help you fix your home the right away. You will need this loan if you don’t want or don’t have home equity or a home equity line of credit (HELOC).
#4 Take a vacation
You may also take out a personal loan for a vacation. Honeymoons, special holidays, and exotic vacations can cost a lot of money. You can also give your spouse a treat on your anniversary or other special occasions in your life. A personal loan can help you take care of that and give the two of you an amazing experience.
#5 Plan your wedding
Your wedding day is one of the most important days in your life. You can make the day a memorable one. A personal loan may help you cover expenses such as:
- Wedding coordinator
- The bride’s dress
You could pay for an engagement ring with this loan as well. With a personal loan, you can take care of all your wedding expenses and repay the loan after your wedding.
#6 Large purchases
A personal loan may also come in handy when considering buying a large asset. This can be a home, car, or recreational boat. You can also use the loan to buy snowmobiles, motorcycles, and anything else you desire. Therefore, you can take care of these large purchases with a personal loan.
#7 Relocation expenses
When relocating within your neighbourhood, you might not need much money to move. You can’t say the same about long-distance relocation. That may involve a cross-country trip. For instance, a job opportunity may need you to move from the south to the north. This might mean you have to buy furniture for your new home. You could also have to pay a hauling service to move your household belongings. If you have a car, you may need to transport it across the country as well. You need a large sum of money to take care of these expenses. You can rely on a personal loan to sort things out.
Personal Loan Eligibility Requirement
You can’t approach a financial institution for a personal loan and get it on the spot. You must meet the following eligibility requirements to be considered:
- Must be an Australian citizen. If you are not, you must be a permanent resident of the country.
- You must be 18 years old or older.
- You must present two forms, or 100 points, of identity. These can include your passport and a document containing your address. The document shouldn’t be more than 3 months old. If you don’t have those two, present two of the following: your driver’s license, passport, or Medicare card.
- You must also present your proof of income. Two of your most recent payslips are enough as proof. For self-employed applicants, a notice of assessment will work, as long as it isn’t older than 18 months. A personal tax return is also okay to use. Safrock makes this process easier by allowing you to log into your bank account to show proof of transactional data.
- Loan security is recommended. For a secured loan, you must present a tangible item that can cover the loan amount you applied for.
4 Simple Tips for Personal Loan Approval
What if you are unsure of your eligibility after reading the requirements? You can increase the possibility of getting your loan application approved before submission. A few tips that can increase your loan approval chances are:
#1 Meet the loan criteria
Take a look at the criteria again. Which of the requirements do you not meet? Work hard at meeting them.
If you don’t meet the income requirements, you could work on increasing your income until you do. You may have to supplement your income with a part-time job, create a source of steady passive income.
If you have issues with your credit rating, find out the source of the problem and solve it. If you don’t currently have a job, find a way to get a regular source of income. When you meet the criteria, after improving on your inadequacies, you can go ahead and apply for the loan.
#2 Apply for the right loan amount
A lender may consider factors such as lifestyle and income to determine what they can lend out. If your current income can’t support the loan amount, the lender will turn down the application. Has a lender rejected your application in the past for this reason? Take a look at what your current income will allow you to pay without issues. Adjust the loan amount to reflect what you are comfortable with. The lender may approve your application if the loan amount is reasonable.
#3 Have a good account history
Your account history may help you secure a personal loan if it is healthy. If not, your application may be rejected.
So, do you already have an account with the financial institution? Build a reputation for prompt repayment. If it is a bank your employer pays your salary into, they may go through your account to see your saving skills. The ability to add to savings after paying your bills shows you have money management skills. This will count in your favour. The bank will consider these factors when going through your application.
#4 Have a valid means of identification
Don’t approach a financial institution for a loan if you don’t have a valid means of identification. There has to be a way to verify your identity. Without a valid ID, the financial institution won’t approve your application.
There is nothing wrong with seeking help when you need it. An example of that is taking a personal loan to handle important things in your life. This includes medical bills, wedding, vacation, and home remodelling, among other things. Therefore, the type of personal loan you can take depends on your needs and eligibility.
Who is Safrock?
If you need finance and don’t want to deal with the hassle of finding a loan we can help! Safrock is a lender-finder, we’ll find and compare the best secured personal loans between $2,500 and $50,000 to suit your needs. Loans can be secured with your car, motorbike, caravan or boat. Head to our How it Works page to learn more or contact our team directly if you have any questions!