If you’re in a situation where you require access to extra funds to pay for a large upcoming expense, you might consider taking out a personal loan.
What is a personal loan?
A personal loan allows you to borrow a large sum of money which you’ll pay back in instalments (plus interest) over a set term (usually around 1-5 years). It’s like getting a home loan to buy a house, only, personal loans are generally for much lower amounts than home loans (around $2,000 to $100,000).
A personal loan is a great way to pay for big-ticket items like home renovations, cars, medical bills, that you might not have the money to pay for upfront (and are too expensive to pay via credit card) but can afford to gradually pay off over time.
But before you go ahead and apply for a personal loan, here are a few things you should do first to give yourself the best chance of being approved.
1. Whip your credit report into shape
To give yourself the best chance of being approved for a personal loan, you’ll need to be able to prove to the lender that you’re a good borrower who’ll be worth the risk of lending money to and that you can commit to paying back the loan.
Thanks to comprehensive credit reporting which came out in 2018, lenders now have a much broader scope of your credit history and can even see when you’ve missed a bill or made a late repayment.
Which means it's now more crucial than ever to build up a good track record of consistently paying bills on time and getting your credit report into good shape if you want to get approved for a loan.
2. Ditch any lingering debt
In the eyes of a lender ‘debt’ is basically the equivalent of saying the name ‘Voldemort’. Remember, in order to woo the lender and get approved for a loan you need to prove you can pay it back. Which might be hard to do if you’re walking around with a ball and chain of debt tied around your ankle.
Do your best to pay off outstanding credit card balances and eliminate any other lingering debt before you apply for a personal loan. Brownie points if you can go the extra mile and make more than the minimum monthly repayments on your car loan or home loan!
3. Get your life sorted & keep career changes to a minimum
Jumping from job to job isn’t a good look if you want to prove to a lender that you’re financially stable, so before you apply for a personal loan, you’ll want to get your life sorted first and start laying out some stronger foundations in the career sphere.
Think about it, how likely would you be to lend money to that old friend from high school who can’t keep down a job for more than a few months at a time, let alone to a total stranger? So, why would it be any different for a lender? In fact, a lender’s not bound to the moral obligations of a friendship, so the stakes are even higher!
As a part of the loan application process, you’ll most likely need to supply copies of at least 3-6 months worth of payslips as proof of regular income to the lender. So, if you’re new to your role then hold off on the soul searching and try to stick it out for a while first before submitting an application.
4. Don’t overdo it with the hard enquiries
It’s important to note that each time you apply for a loan or any other line of credit the lender conducts a credit check (also known as a ‘hard enquiry’) to determine whether you’re eligible for the loan. Every time a hard enquiry is conducted it gets recorded on your credit report.
From a lenders view, having too many hard enquires made within a short timeframe can make you appear financially unstable, making you a poor candidate for a loan. So it’s super important to limit the number of hard enquiries made against you by applying for as few loans as possible, ideally just one.
5. Only apply when you’re ready
Piggybacking off our last point of avoiding too many hard enquiries, on top of this, it’s important to note that each time you’re rejected for a loan it gets recorded onto your credit report, which will hinder your chances of being approved for other loans in the future.
The best way to avoid being haunted by a loan rejection is to avoid it happening in the first place! As my year 7 textiles teacher would always say, “check twice, cut once”. A saying which has proved itself invaluable far beyond those polka-dotted pyjama pants, might I add.
Moral of the story: Only apply for a personal loan that you know you’re eligible for and will have a good chance of being approved!
Once you’ve taken all of the above tips into consideration and feel that you’re in a better position of getting approved for a loan, be sure to check off these last few steps before submitting an application:
- Compare personal loans: Don’t just settle for the first loan you see. The key to scoring a competitive personal loan deal is to shop around first and compare your options, which you can do via Mozo’s free personal loan comparison tool.
- Shortlist your faves: Once you’ve checked out what’s available, try to narrow your options down to just a few, then carefully assess each to determine which loan is best for you. You can use our free personal loan comparison calculator to get a quick side by side comparison of each product to see which loan has a better offer.
- Check the eligibility criteria: Now that you’ve compared and shortlisted a few options, carefully run through the eligibility criteria for each loan to determine whether you qualify.
- Submit an online application: Once you’ve done this and think you’re ready to apply, just click the blue ‘go to site’ button next to the provider’s name on our personal loan comparison table to be taken straight to the provider’s website where you can fill out an online application.
Decided to bite the bullet and take out a loan? Head to our personal loan comparison tool to compare loads of options and snag a solid deal. For more tips and tricks, go and have a read through some of our personal loan guides and articles.
Compare personal loans - last updated November 28, 2020
- NOW FinanceNOW Finance
Unsecured Personal Loan
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- Symple LoansSymple Loans
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^See information about the Mozo Experts Choice Personal Loans Awards
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