What to know before you apply for a personal loan

What to know before you apply for a personal loan

Getting a personal loan can be a daunting experience as you wade through all the terms, conditions, fine print and jargon.

Knowing what you need to consider before applying can make the process significantly smoother and help your understanding of what to expect, and what's expected of you.

This guide can help you through some of the crucial things to consider as you prepare an application.


Serviceability is a borrower’s ability to meet loan repayments. It is assessed based on the loan amount, a borrower’s income, expenses and other financial commitments. Learn more about serviceability assessments and how they play a role in your application for a personal loan.

Credit reports

A person’s credit report tells a lender about the person’s financial history. It is based on a range of factors including overdue debts, credit card defaults and credit enquiries.

In Australia, you can order a credit report through any credit reporting body (CRB). Check with your credit reporting body for any charges involved in getting your credit report.

Loan repayment periods

The loan repayment period refers to the time between the first payment on a loan and the agreed date at which the entire loan must be repaid. A longer repayment period means you pay less per instalment, but for longer and with more interest than on loans with a shorter repayment period.

Loan types

There are two primary types of personal loans that you can obtain - secured and unsecured - the most distinct difference being that a secured loan is backed by an asset (such as a house or car) while an unsecured loan is not.

Because a secured loan is asset backed (assuring payment in the case of default), it often has a lower interest rate. An unsecured personal loan on the other hand, usually has a higher interest rate, but may be suitable for borrowers looking to borrow smaller amounts, such as the cost of a holiday.

Interest rate types

Loans are offered either with fixed or variable interest rates.

A fixed interest rate will not change for the duration of the loan repayment period, while a variable interest rate may fluctuate over the repayment period. Understanding the type of interest rate can help you decide on the loan that you take up eventually.

Note that Pepper Money offer fixed or variable rate options on unsecured personal loan products. Learn more about Pepper Money’s unsecured personal loans here.

Penalties for pre-payment or in the case of default

Ensure that you are aware of the fees and charges which may be charged by the lender before taking on a loan, including what penalties can apply.

For example, a pre-payment penalty can occur as an additional fee imposed by some lenders when a borrower pays off their loan early, thus compensating the lender for any lost future income.

In the case of defaulting on a secured loan, additional remedies can include repossession and sale of the asset.

Supporting documentation

When applying for a loan, you’ll often be required to produce certain documents to assess your eligibility to borrow, and ability to make repayments each month.

These documents include:

  • Proof of your identity
  • Bank statements indicating any savings or liabilities
  • Proof of income (such as pay slips and tax returns)

Getting your paperwork in order before you apply for any loan can help you save time, and might speed up the loan approval process.

Choosing a lender

There are many loan options available from different lenders, and one person’s borrowing needs could be drastically different from another’s. So, it’s worth taking time to look around and compare offerings before selecting the most suitable lender. 

To get you started, find out how much your individual rate and repayments might be on a Pepper Money personal loan here before applying (it won't affect your credit score).

Got a question? Call us on 1300 108 794. We're here to help.

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