Lenders have varied requirements when it comes to personal loan approvals. But some documents are uniform in all types of loan-granting financial institutions. Personal Loans applicants need to submit documents to assure lenders that they have the capacity to pay back the debt.
If you plan to apply for a personal loan for the first time, you must know the requirements you must submit to guarantee your approval. Here are the five most common requirements lenders evaluate to see if they will grant your loan and give you your desired amount.
- Credit History and Score
Your credit score is a crucial factor for lenders to help them determine if they can grant you loan approval.
Different agencies calculating credit scores in Australia determine the scores in various manners. But if the agency’s credit report estimates scores up to 1,200, it means that the most excellent credit standing must be more than 852, while anything above 661 is still a good number.
Meanwhile, credit reports indicating scores above 1,000 must record more than 540 for a good score. If you reach more than 690, you already have an excellent credit score. But if you have poor credit standing, you can improve your credit score by checking for errors, reducing your credit card limits, and paying your credit cards and other utility bills on time.
- Proof of Income
Personal Loans applications require documents proving that you can repay your debt. The minimum income requirements differ per lender. For example, the lowest average minimum for loan applications is AU$23,000 per annum. But do not feel surprised if your chosen lender will opt not to disclose their minimum income requirements.
Some of the documents you can submit as evidence of income include your latest tax returns, updated monthly bank statements, and signed payslips from your company. But if you are self-employed, you may submit bank deposit slips or tax returns from your profession.
Some lendees opt to file for secured personal loans to get more money at lower interest rates. However, you can only take advantage of this type of loan if you will submit any valuable assets to serve as your collateral.
The common collaterals accepted by financial institutions include investment accounts, real estate properties, precious metals, or cash accounts. But if you fail to pay your debt, the financial institution will repossess your collateral to pay off your remaining balance for the loan.
- Debt-to-income Ratio
Lenders use the Debt-to-income ratio (DTI) to determine your capacity to pay your latest and previous debts. The DTI is usually expressed as a percentage and showcased as a part of your gross monthly income that goes straight to your monthly debt service.
Ideally, your DTI must be less than 36%. However, some financial institutions may still approve your loan application even if your DTI reaches 50%.
- Origination Fee
While paying for the origination fee is not part of your qualification process, the lenders may still require you to pay the personal loan origination fee to take care of the application procedures and other expenses.
Origination fees cost around 1% to 8% of the overall loan amount most of the time. But it will still depend on other factors like your credit score.
Knowing all the requirements when applying for personal loans can help increase your chances for approval. If you can provide the requirements, lenders can evaluate your capacity accurately and grant your application.