Applying for a personal asset loan can be a complicated and stressful process – educating yourself on the required documents and processes can help relieve the pressure.
We will go through the five key things you must know before applying for your personal loan.
It’s important to understand that each financial institution has its own credit procedures and evaluates each application in its own way – speak to your broker for specific information.
Servicing
Servicing is a calculation that comes from analysing your expenditure over a predetermined period of time. The expenses included in the calculation are anything from discretionary purchases to current loan repayments, rent, and projected repayments for the loan you are applying for.
These expenses are then deducted from your income; the remaining figure must meet a predetermined threshold for the application to proceed.
Certain expenses are also calculated with benchmark figures and buffers as opposed to your actual expenses. For example, your mortgage repayments will usually be taken at a 2% higher rate than you are actually paying; this is to ensure you have a buffer should rates rise.
These buffers can all add up and make servicing tighter than expected – it’s important to work with a broker to understand how this will affect your application before applying.
Borrower Profile
Your bank will have a borrower profile on you – it will contain existing and paid-off loans as well as any relevant credit information. The examination of your borrower profile will commence after it is shown you can service the loan.
To gain an idea of what information your borrower profile includes about you, answer these questions:
- Have you had previous loans before, or is this your first time?
- If you’ve had previous loans, how was your repayment history?
- How long have you been in your job, and is your industry deemed as high risk?
- What is your employment structure?
Interest Rates
You’ll be assigned an interest rate depending on the risk profile your financial institution has assigned to you. Those who are deemed lower risk will have lower interest rates. Your existing assets will also be taken into consideration.
The main factors that contribute to the interest rates are:
- Are you a property owner? If not, are you renting or boarding?
- What is the asset you’re looking to buy?
- Is the asset being sold by a dealer or privately?
- Have you had previous finance?
- Are you looking to finance the full purchase price, or are you contributing a deposit?
- What is your credit score?
- Are you full-time, part-time or casually employed?
If you’re a business owner
Consumer (personal) loans are still available for business owners; however, the documents required for proof of income are sufficiently greater.
Banks will no longer accept payslips (because, as the director, you can write whatever you want) which means you will need to provide your most recent personal income tax return (no older than 18 months), the accompanying notice of assessment, 3 months of personal bank statements and the company’s financial statements in order to prove you are able to service the loan.
Consumer (personal) asset loans are daily reducible
The best part about consumer loans is that they are daily reducible!
Essentially, this means that the interest is calculated per day on the remaining balance of the loan – if you make extra repayments or bulk deposits, the amount of interest owed will be reduced come to the end of the loan. It’ll allow you to pay off your loan faster and cheaper!
This means they have much better exit structures and often will have no exit fees at all; just pay the remaining principal, and you are good to go.
Before entering into a consumer loan, make sure you are aware of the exit structure and if it gives you the flexibility to make extra repayments with no additional fees and charges. As always, discuss with your broker should you have any questions!
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