Do I need to disclose my loan purpose?

Do I need to disclose my loan purpose?

When applying for a personal loan, you’ll most likely have a specific purpose in mind for which you plan to use the money you’re requesting to borrow.

Personal loans are one of the more flexible loan types available to borrowers, which means there is a wide range of loan purposes that may be considered for approval including covering medical expenses, paying for a wedding or even furnishing your home.

But are you required to disclose this information on your application?

In a word, yes. And it’s largely to do with obligations of responsible lending.

How does responsible lending relate to disclosing my loan purpose?

In Australia, banks and lenders must be covered by an Australian credit license in order to engage in credit activities such as providing credit under a credit contract – or in other words, providing a loan.

According to the Australian Securities and Investments Commission (ASIC), credit licensees are obliged to comply with the responsible lending conduct obligations set out in the National Consumer Credit Protection Act 2009.

The long and short of it is that credit licensees mustn’t enter into a credit contract with a consumer if the contract could be considered financially unsuitable for the consumer.

Credit licensees are required to decide how they will meet the responsible lending obligations, which according to ASIC involve the following: 

  1. Making reasonable inquiries about the consumer’s financial situation, and their requirements and objectives;
  2. Taking reasonable steps to verify the consumer’s financial situation; and
  3. Making an assessment about whether the credit contract is ‘not unsuitable’ for the consumer.

Put simply, lenders are responsible for assessing how much you want to borrow, why you want to borrow that amount – i.e. your loan purpose – and how it will affect your financial situation.

Lenders require you to disclose your loan purpose to provide them with the information they need to make a comprehensive assessment of whether the loan can be deemed suitable for you, and thus meet the obligations of responsible lending.

 

What are some examples of eligible loan purposes?

There is a wide variety of reasons why a borrower may want to take out a personal loan. Some that will generally be considered by most lenders include the following:

It is important to keep in mind, however, that just because a lender may consider these acceptable loan purposes doesn’t mean that will be the case for every borrower. Lenders assess each application individually, and what’s right for one borrower won’t necessarily be suitable for the next.

For example, someone with excellent credit history, a good income and minimal debt may be approved for a personal loan to furnish their house. This could be because the lender has determined that this borrower is unlikely to face difficulties making repayments on the loan.

In contrast, someone who has multiple credit cards, a subpar credit score and an unsteady employment history may have their application for a personal loan to furnish their house rejected. In this case, the lender likely made the assessment that the loan could put the borrower in a position of financial strain due to their personal circumstances.

Remember that taking out a loan can be a significant financial commitment, so it’s important to take your time shopping around and comparing your options before making a decision.

Consider talking to a financial advisor for information specific to your personal situation.

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Learn more about personal loans

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

Can I get a bad credit personal loan with a guarantor?

Some lenders will consider personal loan applications from a borrower with bad credit if the borrower has a family member with good credit willing to guarantee the loan (a guarantor).

If the borrower fails to pay back their personal loan, it will be their guarantor’s responsibility to cover the repayments.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

Can I merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full term.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

What is a secured bad credit personal loan?

A bad credit personal loan is 'secured' when the borrower offers up an asset, such as a car or jewellery, as collateral or security. If the borrower fails to repay the loan, the lender can then seize the asset to recoup its losses.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

Can I get a personal loan if I receive Centrelink payments?

It is hard, but not impossible, to qualify for a personal loan if you receive Centrelink payments.

Some lenders won’t lend money to people who are on welfare. However, other lenders will simply consider Centrelink payments as another factor to weigh up when they assess a person’s capacity to repay a loan. You should check with any prospective lender about their criteria before making a personal loan application.

How do I consolidate my debt if I have bad credit?

The worse your credit history, the harder you will find it to consolidate your debts, because lenders will be less willing to lend you money and will charge you higher interest rates.

However, people with bad credit histories can make debt consolidation work by following this three-step process:

  1. First, find a lender willing to give you a bad credit personal loan. This process will be simplified if you go through a finance broker or use a comparison website like RateCity.
  2. Second, make sure the interest repayments on your new loan are less than the repayments on the loans being replaced.
  3. Third, instead of spending those savings, use them to pay off the new loan.

What interest rates are charged for personal loans?

Lenders aren’t allowed to charge interest on loans of $2,000 and under. Instead, they make their money by charging a one-off establishment fee of up to 20 per cent and a monthly account-keeping fee of up to four per cent. Lenders might also ask you to pay a government fee.

For loans between $2,001 and $5,000, lenders can make their money in only two ways: a one-off fee of $400 and annual interest rates of up to 48 per cent.

For loans of $5,001 and above, or for loans that have terms longer than two years, lenders can charge annual interest rates of up to 48 per cent.

Those fee caps don’t apply to loans offered by authorised deposit-taking institutions such as banks, building societies or credit unions, although such institutions are highly unlikely to charge interest rates of anywhere near 48 per cent.