31 Aug What do banks look at during your personal loan application?
So you have decided you want to go ahead with that renovation you have been planning, or maybe it’s a classic car you have had your eye on. Personal loans can be utilised for many different reasons and are one of the most common form of financing for Australian Consumers. With so many personal loans being applied for every day, set yourself apart from the crowd with an understanding of exactly what the banks are looking at when you apply for your personal loan.
The banks will look at 4 key areas to work out your borrowing capacity. Here’s a brief rundown on each.
1. Credit Score
The obvious one first – everyone has a credit score and it’s this score that all banks will look at to determine their underlying risk in lending you money. Your credit score can be negatively impacted by things such as,
- Applying for pay day loans
- Making several loan enquiries in a short period of time
- Missing your credit card repayments, or
- Falling into default with your service providers.
Keep up to date with all your current financial commitments and bills to keep your credit score as high as possible. Generally speaking the healthier your credit score, the lower your interest rate is going to be on your new personal loan.
Banks will assess your net income to determine how much you have coming into your household each month. They will take your net income figure, not your annual total salary figure. Your net income figure is how much you receive after tax has been withheld from your income. This is calculated from the Year To Date Net Pay figure as shown on your payslips.
If you are self-employed, they will calculate your income from your tax returns. So bare that in mind if you are self employed and wanting to apply for a loan – a low taxable income can have its benefits but can also make borrowing money more challenging.
3. Living Expenses
Every loan application requires you to declare your living expenses. This is the bank’s way of making sure you have enough money to afford the new loan commitment, and that it isn’t going to put you under financial stress if you go ahead with it.
Your living expenses are broken into categories such as utilities, communications, transport, and groceries. So it is well worthwhile preparing a household budget before you apply for a loan so you know how much you currently spend, and how much is left over at the end of each month.
4. Current Financial Commitments
Lastly, the banks will look at what current financial commitments you already have, and what the repayments are on those commitments. They want to see that you are keeping up with what you currently have before giving you more. Good payment history on existing loans is very important, banks talk to each other! If you are behind in repayments on one loan, there is a fair chance the new bank you are applying with will find out about it.
Making sure you aren’t carrying too much credit card debt is also important. Banks will assess credit card debt as if the credit cards are fully drawn, even if you owe nothing on them. If you have credit cards that you don’t need or aren’t using it can be beneficial to close these cards before applying for your personal loan.
With these four points in mind you will be able to get yourself approval-ready for your next personal loan application.
To take the stress out of the whole process, give us a call and speak to us about your personal loan requirements. We will walk you through every step of the way to achieve the best possible outcome for you.