Which type of loan is most likely to get approved?
Throughout life, there will likely be a number of times when you need a little extra financial help. It could be for anything from the wedding of your dreams, to a home for your family – and a loan is often the best way to make it all happen.
With the help of lenders such as banks, there are a large range of loan types you can apply for. So how can you go about ensuring your loan will be approved?
Types of loans
First of all, it may help to understand the different types of loans on offer. While all of them essentially mean that you’ll be borrowing money, the terms and conditions of each one make them all different.
For example, a personal loan can cover multiple purposes. You might use one to help to furnish a home, to go on holiday, or just about anything! They can be large or small in size and will often come with a number of options, such as ‘no fee’ loans, flexi and low interest options.
Another common type are vehicle loans. A car loan is designed specifically to allow you to purchase a vehicle, with options depending on what you’re after. For example, you may be able to secure a discount should you purchase an environmentally friendly car, and you can choose to pay it off for up to seven years to keep the repayments low.
The largest loan most people will ever take is a home loan. There are a huge number of options when it comes to applying for one of these loans, so you and your advisor can decide on the best one for your situation. For example, a fixed interest rate will help you know exactly how much you have to pay each period, whereas a variable loan can make the most of floating interest rates.
Regardless of which type of loan you’re looking for, they are all usually declined for similar reasons. It’s also important to note that the more you’re borrowing, the greater the risk for the lender, so small loans may be more likely to be approved. Essentially, a bank will consider how likely you are to be able to pay the money back, and if there are signs you may not meet repayments, this is why a loan may be declined.
For example, if you’re under the age of 18 and are looking for a loan, you may be considered too young to take on the responsibility. If you’re not an Australian resident and are only visiting the country, the bank may consider that as a risk, as you could leave the country without repaying the loan.
One of the main reasons for a loan disapproval is that your income isn’t considered high or stable enough for repayments.
Alternatively, perhaps you haven’t honoured loan repayments in the past – either with the same lender or another one. And in some cases, a loan may be declined if you can’t ‘secure’ it with an asset, which is to say that you have a piece of physical property to back up the loan.
How to get your loan approved
To approve a loan, a lender is basically looking for someone they can be sure will meet repayments. Signs include;
- Stable income and employment history
- No unpaid past debts
- Existing evidence of savings
- Physical collateral
- Over the age of 18
- Australian resident
It’s important to note that a lender doesn’t actively want to decline you for a loan, and that it’s simply their way of managing their risk.