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.

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 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.

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.

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.

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.

How are credit ratings/scores calculated?

Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.

They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.

Your score can change if your demographic profile changes or new information is added to your file (such as a new loan application) or existing information is removed from your file (i.e. because it has reached its expiry date).

What is bad credit?

A person is deemed to have ‘bad credit’ when they have a poor history of managing credit and repaying debts.