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

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.

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 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.

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 are personal loans regulated?

Personal lenders in Australia are regulated by ASIC (the Australian Securities & Investments Commission) and must follow responsible lending rules. That means they can’t lend money without making “reasonable inquiries” about a borrower’s financial situation and ensuring the loan is “not unsuitable” for them.

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.

Are there alternatives to $2000 loans?

If you need to borrow $2000 or less, alternatives to getting a personal loan or payday loan include using a credit card or the redraw facility of your home, car or personal loan.

Before you borrow $2000 on a credit card, remember that interest will continue being charged on what you owe until you clear your credit card balance. To minimise your interest, consider prioritising paying off your credit card.

Before you draw down $2000 in extra repayments from your home, car or personal loan using a redraw facility, note that fees and charges may apply, and drawing money from your loan may mean your loan will take longer to repay, costing you more in total interest.

Can I get a self-employed personal loan with bad credit?

It may be much more difficult for a self-employed borrower to successfully apply for a personal loan if they also have bad credit. Many lenders already consider self-employed borrowers to be riskier than those in full-time employment, so some self-employed personal loans require borrowers to have excellent credit.

If you’re a self-employed borrower with a bad credit history, there may still be personal loan options available to you, such as securing your personal loan against a vehicle of equity in a property, though your interest rates may be higher than those of other borrowers. Consider contacting a lender before applying to discuss your options.

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

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.