A guide to low income personal loans

If you’re earning a lower income, a personal loan might not feel like a possibility. However, income is just one of many tools used to calculate whether or not you can get a loan. At Mozo, we’re here to break down the ins and outs of a low income loan.

A personal loan for low income earners is exactly the same as any other personal loan, but designed for people earning an inconsistent salary. This tends to cover part-time and casual employees, students, and in some cases self-employed individuals.

Like with any other personal loan, there is a principal amount of money you borrow from a bank or lender. It is then paid back over a set term, along with accumulated interest and any fees.

Depending on the type of loan you opt for, loans for low income earners can be used for any number of things. From car loans to debt consolidation, most loans allow you the freedom to choose how you spend your money. That means that once you qualify, you could use that loan for common loan uses like medical bills or home renovations.

Since earning a low or inconsistent income can make some of life’s larger expenses a little bit more difficult, a low income personal loan can add some comfort and flexibility to your spending, as long as you can make your repayments.

Low income personal loans can be categorised into a few types, including secured, unsecured, fixed rate and variable rate. Let’s get into what these mean for the borrower:

• Secured: A secured loan gives your lender some assurance that you’ll be paying them back. Your loan is held against a valuable possession, like a car or a property. If you can’t make your repayments, the lender can recover their losses by selling your security. Secured loans carry some risk for you (as your possessions are on the line) but they also tend to come with lower interest rates, and are more easily accessible to low income earners.

• Unsecured: Instead of being held against property, unsecured loans are based entirely on your creditworthiness. Without any possessions at play, rates on unsecured loans tend to be higher.

• Fixed rate: A fixed rate loan keeps the same interest rate for the length of the loan. You’ll be able to plan around these loans, as you know exactly how much interest you’ll have to pay over the loan’s term. As a result, these loans tend to have higher interest rates.

• Variable rate: Meanwhile, a variable rate loan can have changing interest rates over the course of the loan. This may not have a major impact on shorter loan terms, but it can mean big changes over a longer term (for example, a 5 year loan). These loans often offer lower interest rates than their fixed counterparts.

Earning an inconsistent or lower income shouldn’t make you latch on to the first loan you can find. If you can find a loan with features that suit your needs, you’ll be making things better for yourself in the long run.

• Flexible repayment schedule: Being able to schedule your repayments in time with your pay can be a lifesaver when you’re getting paid on a weekly, fortnightly or irregular basis. 

• Extra repayments: If you find yourself with an unexpected flow of money, being able to make extra payments can help you pay off your loan faster - meaning you’ll pay less interest overall!

• Redraws: If you find yourself financially stretched and unexpectedly need some extra money, being able to redraw some of those additional repayments can be a lifesaver. Not all loans allow this, or can charge a hefty fee.

• Early repayment or break costs: Some loans charge an extra fee for you to pay off your loan early. If you happen to be able to pull yourself into a position where you can pay off your loan before the end of its term, the last thing you want is to incur an additional fee.

• Speed: When taking out a loan, consider how fast you need the money. All loan approvals take time, though this can be faster with online lenders and peer to peer providers.

Being a low income earner or receiving Centrelink payments may alter your eligibility for some loans, but it should not rule you out.

What lenders are really interested in is your credit score and credit history. This means your history of paying back credit cards, loans, and utility bills on time is far more interesting to a lender than your income.

You may also be able to show evidence of savings rather than evidence of income, meaning the money you have saved up is used to demonstrate your ability to pay back a loan instead of the money you are earning month to month.

In fact, low or no income earners receiving Centrelink payments may also be eligible for the No Income Loan Scheme (NILS). This is a form of loan that doesn’t charge interest for up to $2,000 for essential goods and services. This exists to help the most in-need members of our community. 

If more than half of your income comes from Centrelink, most lenders will not loan you money exceeding 20% of your annual income.

If you have got some bad credit, that also shouldn't make getting a loan an impossibility. There are personal loans for bad credit, though our top tip is always to do some work repairing your credit score.

In order to apply for a low income loan, you’ll need to provide the standard documentation.

That means:

• Identification

• Proof of income (if applicable)

• Bank statements

You will also have your credit checked, so if there are any steps you can take to improve your credit score, this might be the time.

There are also loans called “low doc loans”, which are called that because they require low documentation. These can be useful if you are unable to show proof of income or savings. Since these are high risk for lenders, these loans can have restrictive conditions and high interest rates.

Once you’ve worked out what you can afford to borrow and make payments on with our personal loan repayments calculator, it’s time to find the loan for you. We’ve listed some below, but you can also explore our personal loans database. Make sure to read the terms and conditions, as each lender will have different considerations regarding income.

To help simplify the loans process, stay informed on easy loans and how to keep the process streamlined.

For more finance guides for low income earners, read up on overcoming financial hardship, savings tips and whether you can get a credit card. We’ve also selected some of Mozo’s best personal loans to explore.