The real-life guide to personal loans

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A personal loan could help you get on with your real-life goals – including everything from renovating your kitchen to planning that wedding, or even consolidating debt.

If you’re considering a personal loan, read on as we answer common questions, outline the application process and discuss important things to look out for.

What can I use a personal loan for?

Paying for a wedding, a once-in-a-lifetime holiday or furthering your education are popular reasons for getting a personal loan. You might want to complete some overdue home renovations, upgrade your kitchen or get a new (or used!) car. Personal loans can also pay for unexpected things like emergency medical expenses, or you may want to use it to consolidate debt. Ultimately, personal loans can provide financial freedom when your savings can’t quite cover it.

What’s the difference between secured and unsecured personal loans?

Both loan types are assessed by the lender with their decision based on your ability to make repayments.

A secured loan is where the lender requires some sort of guarantee against the money you’re borrowing from them, like a car for example.

An unsecured loan does not require the additional security of an asset. Depending on your circumstances, the lender may provide lower interest rate for a secured loan compared to an unsecured loan.

Should I purchase outright or get a personal loan?

One way to help you decide is to try comparing the cost of credit with how much you can earn in savings over the same period of time and see which works out best in the long term.

For example, if you can get a great finance rate and the repayments fit easily into your monthly budget, you can keep your savings for your rainy-day fund or to invest in other things with a higher return. If the earning potential of the savings is greater than the cost of finance, then a personal loan could be an option.

How do I find out the interest rate?

We have a unique get my rate tool, which allows you to find out what your repayments might look like - before applying for your loan. You'll need to provide a few personal details so we can access your credit file, however it won't impact your credit score.

This can help you find out where you stand before deciding to apply for credit or not.

How do I choose a lender?

There are many ways to decide where to go for a personal loan, including a non-bank lender like Pepper Money or a more traditional lender like a big bank. Start by making a list of product features which are important to help narrow down the options.

For example:

Does the loan have any application and/or ongoing monthly fees?
Are there fees associated with paying off the loan quicker?
Would you consider providing security for the loan (e.g. a motor vehicle)?
Do you want a fixed or variable interest rate?
What loan term are you looking for?
What loan amount do you want?

Once you’ve chosen a lender, you can move onto the next step – applying for your personal loan.

Personal Loan jargon buster

When you’re finally ready to apply, it’s good to understand what all the technical industry jargon means. Here are some terms to look out for on your application journey.

Serviceability: A serviceability assessment determines a borrower’s ability to meet loan repayments. Information that is included in the assessment includes the loan amount, income, living expenses and financial commitments.
Loan repayment period: This is the time between the first payment on a loan and the agreed date at which the entire loan must be repaid.
Interest rate types: Personal loans are offered either with fixed or variable interest rates. A fixed interest rate will not change for the duration of the loan term, while a variable interest rate may change during the loan term.
Pre-payment or default fees and charges: Be aware of any potential fees and charges before taking on a loan. For example, a pre-payment fee may apply if you pay off the loan early, or there may be fees and charges if you default on your loan. If you default on a secured loan, the lender may also repossess and sell the asset that you’re using for security.

How do I apply for a personal loan?

Once you’ve chosen a lender, having these documents on hand when you apply for your personal loan can help speed up the loan application process.

Proof of identity

Bank statements showing any savings or existing liabilities

Proof of income (such as pay slips or tax returns if self-employed)

If you’re self-employed, you may also want to consider any seasonal downtime or lean periods that may affect your ability to repay the personal loan. Check out our guide to self-employed loans to learn more.

Top tip: Don’t lodge multiple loan applications.

It’s important to do your research before applying for a personal loan rather than applying with multiple lenders. This is because every time you submit an application to a lender, it may result in a credit enquiry on your credit file. Multiple enquiries in a short period of time can negatively impact your credit score – which may result in lenders perceiving you as a higher risk.

Why was my personal loan application declined?

If your personal loan application has been declined, you didn’t meet the lender’s credit criteria. Why? Here are some reasons that may apply:

Credit Report

Your credit report is a record of your credit history including loans you’ve applied for and taken out and defaults and judgements.

Credit score

Your credit score is a number that’s calculated by a credit reporting body. It uses a formula that considers credit repayment history information, how much debt you have and how you compare to other borrowers. Your credit score helps show lenders the strengths and weaknesses of information in your credit report.

Large amounts of debt and previous difficulty repaying things like credit cards, car or home loans will impact your credit score. Lenders will use this credit score and their own credit criteria to assist with their assessment on whether to approve credit, how much to lend and depending on the lender, the interest rate.

Checking your credit report

If you thought you had good a good credit history but were denied a personal loan, it could be a good idea to check your credit report. Things like having the same debt listed more than once, incorrect credit enquiries or repayment history on your credit report could all have an impact on your overall credit rating.

To ensure your credit report information is accurate, you can obtain a free copy of your credit report every three months and can request to have it corrected if you think the information is incorrect. Credit reporting agencies in Australia include Equifax, Illion and Experian.

Even if all the data is correct, reviewing your report could give you a clearer view of your financial situation.

Capacity to service the loan

When making an assessment, lenders need to make sure a loan meets your requirements and objectives and that you can afford to repay the loan without substantial hardship. This is called responsible lending – the lender must make enquiries and verify your financial situation including your income, liabilities and living expenses. If you cannot repay the loan that has been applied for without substantial hardship, the lender must decline the loan.

Large amount of debt

Although a personal loan can be a way to consolidate existing debts, your loan application might be declined if you owe too much. This is determined by looking at the percentage of your income that goes towards paying your existing debt (your debt-to-income ratio) and if you’ll be able to afford the new loan.

Instability in employment and irregular income

Employment is most people’s main source of income. Lenders may require you to be in a stable job when assessing your income and whether you can meet your monthly loan repayments. If you’ve been changing jobs every few months and can’t prove you have a regular income, your loan application may be declined.

Poor credit history

This could mean two things. Either you don’t have a sufficient credit history, which means lenders are unable to assess your financial conduct, or your credit report is showing existing issues like a poor repayment history.

What can I do to help get approved for a personal loan?

While there’s no surefire way to get approved for a personal loan. Here are a few tips that could help you increase your chances:

Get a copy of your credit report

Your credit report contains information about your credit history, which is collected from organisations including lenders and courts . It’s available for free every three (3) months through credit reporting bodies such as Equifax, Illion or Experian. It will help you to:

Be aware of any negatives against your name;
Check that the report is factually correct;
Help make plans to improve your ability to obtain credit in the future.

Outstanding debts will typically stay on your file for five or seven years after they have been paid out. Many lenders want to know what actions you’ve taken to address any past repayment difficulties.

Create a budget

Take a look at our budgeting tips. If you can create and stick closely to a budget, you can manage your debts and expenses better and look to build up some savings, which can be a way to show a credit provider you can manage making repayments on any future loans.

Get some help

If you find you’re struggling with debts and feeling stuck, don’t do it alone – get some help. There are free financial counselling services available throughout Australia. Search for someone who can give you good advice such as Financial Counselling Associations or check out the National Debt Helpline. They have lots of resources that can help you sort out your financial present and future.

We're here to help

A personal loan could be your key to living the real life you dream of. Being financially aware and prepared will put you in the best position for loan approval – and reaching your goals.

Use our Pepper Money repayments calculator to find out how much your repayments might be and include them into your budget so you can understand if a personal loan won’t put you under too much financial pressure. Then when you're ready, you can get your individual interest rate before applying in just a few minutes without affecting your credit score.

Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

All applications are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply.

The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.

Pepper Money Personal Loans is a brand of Pepper Money Limited. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213 030. Personal information for Pepper Money Personal Loans is collected, used and disclosed in accordance with Pepper’s Privacy Policy & the credit provider’s Privacy Policy.

Pepper Money Limited ABN 55 094 317 665; AFSL 286655; Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.

Pepper and the Pepper Money logo are registered trademarks of Pepper Group Assets (Australia) Pty Limited and are used under licence.

The real-life guide to personal loans

What can I use a personal loan for?

What’s the difference between secured and unsecured personal loans?