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How to apply for a personal loan

Mark Bristow avatar
Mark Bristow
- 7 min read
How to apply for a personal loan

If you need money for a personal project like a renovation, an event like a wedding or a holiday, or a major purchase like a car, you may be in the market for a personal loan. But before you start firing off applications, it’s important to get an idea of what to look for in a personal loan, and how the application process works.

Calculate how much you can afford to borrow

A personal loan calculator can give you a better idea of whether you can realistically afford the repayments on a personal loan, as well as how small changes to the interest rate, loan term and other factors may affect these repayments. 

Look at your income and expenses to work out if you can realistically afford the repayments without being put at too much risk of financial stress. Taking on too much debt could reduce the chances of your personal loan application being approved.

Check your credit score

Your current credit score will affect how a lender will consider your application. You can check your credit score for free to get a better idea of how personal loan providers see you as a borrower.

If you’ve successfully applied for credit in the past and regularly make your payments on time, you may have a good credit score, and may be eligible for personal loans with lower interest rates and more flexible features.

But if you have bad credit, possibly due to some money troubles in the past, it may be harder to qualify for an affordable and flexible personal loan. If your credit score is on the low side, you could consider taking some time to try and improve your credit score before you go applying for personal loans.

Compare personal loans

One of the simplest ways to find a personal loan is to get in touch with your current bank, but that may not be the best solution for every borrower. There are a wide variety of personal loan options available from a range of banks and other lenders, so it’s important to compare the available options and consider which personal loan offer may best suit your financial needs and personal goals.

Some of the key features to look at when comparing personal loans include:

Interest rate

How much extra you’ll pay back to the lender with your repayments – the higher the rate, the more the loan will cost. This may be a fixed rate that will keep your repayments the same for the loan term, or a variable rate that may rise or fall with the market, but may also offer improved flexibility.

Comparison rate

Combines the cost of interest and the standard fees and charges, indicating the loan’s overall cost. Keep in mind that this may not perfectly match the actual cost of the loan, and there may also be other nonstandard fees to consider.

Loan term

How long you plan to take to pay off your personal loan. You may be able to choose a term of between 1 and 7 years – the longer the term, the lower your repayments, but the more interest you’ll pay in total, and vice versa.

Secured or unsecured?

You may be able to use an asset you own to help secure a personal loan, reducing the lender’s risk and letting you enjoy a lower interest rate. Assets could include equity in a property you own, cash in a term deposit, or even valuable artworks or jewellery in some cases. 

Car loans often use the value of the vehicle being purchased as collateral. Secured personal loans often have limits around the type of asset that can be used, and you risk losing your asset if you’re unable to keep up with your repayments.

Unsecured personal loans don’t require collateral, so they can be a more flexible option for some borrowers. However, they’re also more likely to charge higher interest rates and fees.


Personal loans may be available with other special features that could affect how you manage the repayments. While these features may add extra value, they can sometimes also push up a personal loan’s cost. 

Some personal loan features could include:

  • Extra repayments
  • Redraw facility
  • Instant approval
  • Funds available within 24 hours

Gather your documents

Different lenders may require different supporting documents for their personal loans.

Keep in mind that if you’re applying for a personal loan from a bank where you’re already a customer, you may not need to provide as much documentation, as the lender may already have your details on file.

Some of the common requirements include:

Personal details

Your identification, e.g. drivers licence, birth certificate, passport. Non-residents may also need to provide visa details or other documents.

Proof of income

Payslips, bank statements, or a letter from your employer could all be used to help confirm that you can afford personal loan repayments. Casual employees, self-employed Australians, investors, and people on government benefits may need to provide alternative documents.

Details of debts

Do you have a credit card? Payday loans? Buy Now Pay Later? The lender may want statements to help show that you can still comfortably afford the personal loan you’re applying for.

Green verification

Are you applying for a green personal loan to add environmentally friendly features to your home, or to buy a fuel-efficient car?

Contact the lender

Most banks and other lenders offer the option to apply for a personal loan online. If you’d prefer, you can always call the lender and ask to apply over the phone, or complete a paper application form in person at your local branch. Remember that you’ll also need to provide copies of your documents, whether from digital photos or scans online, or printed pages or photocopies in person.

You may be tempted to apply for personal loans with multiple lenders at once, hoping that at least one of these applications should be approved. However, each application will be recorded in your credit history, and each lender will conduct a credit check when they process your application. Making too many credit applications over a short period can make you look desperate for finance and poor at managing money, which could see your applications rejected by the lenders, damaging your credit score.

Await a response

Some lenders may offer instant approval for personal loans, where you can see your loan approved or denied automatically based on the strength of your application. Keep in mind that instant approval doesn’t mean getting instant access to the money – you may still need to wait for the lender to conduct extra checks before your application’s final approval.

In other cases, you can often expect to hear back from the lender within a few business days of submitting your application. If you’re approved, you may still need to sign some final documents before the lender can transfer the money to your account.

If your application is rejected, you can ask the lender why, and take steps to improve your situation before you attempt to apply again. You may want to wait some time before applying again, as making too many applications in rapid succession can hurt your credit score.

Start making repayments

Assuming your personal loan has been approved, congratulations! The lender should now deposit the lump sum you have borrowed into your nominated bank account.

You’ll now be obliged to repay this amount to the lender, plus interest, in regular instalments over the agreed loan term. Once you have fully repaid the loan principal, plus any outstanding interest charges and fees, the personal loan will be closed.

Compare personal loans

Product database updated 16 Apr, 2024

This article was reviewed by Personal Finance Editor Peter Terlato before it was published as part of RateCity's Fact Check process.