Is it possible to get a personal loan for a house deposit?

Is it possible to get a personal loan for a house deposit?

The answer to the question ‘can I get a personal loan for a house deposit?’ is technically yes, depending on your personal circumstances. 

While it may be possible, it is not an option available to everyone and could work out to be more costly when higher interest rates from personal loans are taken into account. 

It is also dependent on whether the lender is willing to accept money that has been loaned as a deposit. 

Some people consider borrowing from parents or friends as an alternative if they don’t have enough of a deposit for a home loan. Others choose to save for longer and delay their buying plans by a year or two.

Remember, besides your home loan deposit, you also have to think about other fees and costs you may have to pay, including stamp duty. 

Borrowing more than 80 per cent of the property’s value often attracts Lenders Mortgage Insurance (LMI), which is the lender’s insurance against loan default. Having a 20 per cent deposit usually means you don’t have to pay LMI. 

However, some people who don’t have a 20 per cent deposit may consider getting a personal loan.

Factors affecting your chances of getting a personal loan for a house deposit 

Getting a personal loan for a house deposit depends on a variety of factors, including your credit history, repayment capacity and personal circumstances.

Your credit history

Lenders need to check your credit history to gauge how good you are at paying back loans on time. If you have not taken a loan or credit card earlier, then you may not have any borrowing and payment history to get a credit score. If you have ever defaulted on your loan or credit card payments, your credit score may not be as good as it could be. Both these scenarios may be an obstacle to getting a personal loan in addition to a home loan.

How much you can afford to repay from a lender’s perspective 

All lenders study your bank account statements for up to 6 months to determine your income and expenses each month. They need to assure themselves that you are in a position to meet your monthly loan obligations. 

Why it may not be a good idea to get a personal loan for a house deposit

Using a personal loan for a house deposit is often the last resort for people who plan to apply for a home loan as it is both expensive and creates an additional debt burden. Given not every lender accepts personal loans as deposits, it’s worth investigating before going down this path. 

Other things to keep in mind

  • Rules for the initial deposit are dependent on the borrower’s circumstances. If you are a first-time borrower and haven’t yet built up a credit score then it is tough to prove your credit-worthiness, so your bank may ask you for a larger deposit.
  • If you’re eligible for the First Home Loan Deposit Scheme, you may only be required to pay a 5 per cent deposit without taking the LMI. The Federal Government guarantees the balance shortfall in the deposit.

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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 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.

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.

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.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

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.

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 you pay off a quick loan early?

Many lenders will allow you to make extra repayments onto a quick personal loan when you can afford them, or even exit the loan early, which can help reduce the total interest you are charged. Be sure to check your quick loan’s terms and conditions, as some lenders charge early exit fees for paying off a loan ahead of schedule.

Can I get a fast loan with bad credit?

Some lenders offer fast loans to borrowers with bad credit. Providers of small payday loans of up to $2000 or medium amount loans of up to $5000 may have no credit checks, though these lenders will usually want to confirm you can afford its loans on your income.

What do I need to get a fast loan?

Most lenders will need to you provide the following information in your application for a fast loan:

  • Proof of identity
  • Proof of residence
  • Proof of income
  • Details of any assets you own (e.g. car, home etc.)
  • Details of any liabilities you owe (other personal loans, credit cards, mortgages etc.)
  • How much you want to borrow
  • Over how long you want to pay it back
  • Purpose of your loan

Are there any interest-free emergency loans?

The No Interest Loans Scheme (NILS) allows low-income borrowers to take out no-interest loans for up to $1500 to purchase essential goods and services.

There are also similar low-interest loan schemes available to borrowers in financial hardship who are having a tough time getting finance approved.

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.