How to get a personal loan in 7 steps

Getting a personal loan is a relatively straightforward process, but it requires attention to key factors such as your credit score, income, and financial history. For many Australians, this type of credit can offer a quick solution to deal with situations like debt consolidation, home improvements, medical expenses or unexpected financial emergencies.

In this guide, we explain how personal loans work, what documents are usually required, and which steps can help you improve your chances of approval — even if your credit score is less than ideal.

But first, what is a personal loan?

A personal loan is a type of credit offered by financial institutions where a lump sum is provided upfront and repaid in instalments over a set period. Most personal loans are unsecured, meaning you don’t need to offer an asset — like a house or car — as collateral in case you’re unable to repay the loan.

This feature makes the process faster and less bureaucratic than secured options like mortgages or loans backed by a pledge. However, because unsecured loans carry more risk for the lender, interest rates are generally higher.

With a strong credit score and stable income, borrowers are more likely to access favourable terms, including competitive rates and flexible repayment periods — which, in Australia, can extend up to seven years.

1. Check your credit score

The first step is to check your credit score, as lenders use it to assess the likelihood of you repaying the loan on time. The higher your score, the better your chances of securing lower interest rates and more favourable loan conditions.

Your credit score is based on several factors, including:

• Payment history: Late or missed payments on credit cards, loans, utilities, and other bills can negatively impact your score.
• Type and length of credit: A healthy mix of credit accounts — such as credit cards, personal loans, and car finance — used responsibly helps build a strong profile.
• Available credit limits: Having access to high credit limits, even if unused, can sometimes count against you depending on how much you owe overall.
• Negative listings: Defaults, debt collection notices, bankruptcy, or court judgements can significantly lower your score.

If your credit score is lower than you’d like, it’s worth taking steps to improve it before applying for a personal loan — such as paying down existing debts, correcting any errors on your credit report, and renegotiating credit card limits or terms if needed.

2. Understand what lenders require

Each financial institution sets its own approval criteria, but there are a few key factors that are commonly assessed when applying for a personal loan:

• Minimum credit score: Most lenders require a good to excellent credit score, especially if you’re applying for a larger loan amount or a longer repayment term. The better your score, the more likely you are to receive lower interest rates and more favourable terms.
• Debt-to-income ratio (DTI): This ratio measures how much of your monthly income goes towards debt repayments. While some lenders accept a higher DTI, ideally it should be below 30%, as this signals strong financial management and lowers your perceived risk.
• Regular income: Having a stable, verifiable income is crucial to demonstrate your ability to repay the loan. In some cases, applying with a guarantor (someone with a solid credit history who agrees to take responsibility for the loan if you default) can improve your chances of approval or increase the amount you’re eligible to borrow.
• Purpose of the loan: Although personal loans are generally flexible, many lenders have restrictions on how the funds can be used. Common exclusions include paying for university tuition, investing in the stock market, or funding a new business.

3. Do the maths carefully

Before deciding how much to borrow, take the time to assess exactly how much you need — and how much you can afford to repay each month without stretching your budget. Since personal loans are repaid in fixed instalments, you won’t be able to access extra funds unless you apply for a new loan.

Be aware of establishment fees, which are often deducted from the total amount approved. This means you may need to request a slightly higher loan amount to receive the actual amount you need in your account.

When calculating the true cost of the loan, it’s important to factor in not just the principal amount and any upfront fees, but also ongoing interest and additional charges. Consider the following:

1. Annual Percentage Rate (APR)

The APR includes both the interest rate and any mandatory fees. It’s the most accurate way to compare loan offers side by side, as it reflects the total yearly cost of borrowing. Take time to review this rate — a low interest rate doesn’t always mean a cheaper loan overall.

2. Loan term

Longer repayment terms usually mean lower monthly repayments, but they result in more interest paid over time. Shorter terms can help you save on total interest, but require more financial discipline to manage higher repayments.

3. Total cost over the life of the loan

Multiply the monthly repayment by the number of months in your term (including interest and fees). This gives you the real cost of the loan from start to finish.

4. Additional fees

Aside from interest and the upfront fee, some lenders may charge: monthly account-keeping fees, late payment penalties, early repayment fees and always read the terms to avoid unexpected costs.

5. Loan protection insurance

Some lenders offer optional insurance that covers your repayments if you lose your job or become unable to work due to illness or injury. Consider whether this is necessary for your situation and whether the added cost is justified.

4. Prepare your documents in advance

Organising your documents ahead of time can speed up the loan application process and reduce the risk of delays or rejection due to missing information. This step is essential, as it can directly impact your chances of approval — as well as the terms of your loan, including the amount, interest rate and repayment period.

Some lenders may ask for more documents than others, especially traditional banks. Online lenders often make the process more streamlined, but generally, the following documents are commonly required:

Proof of identity

• Australian driver licence
• Valid passport
• Government-issued ID (such as a Medicare Card)

Proof of income

• Recent payslips (usually from the past 3 months)
• Tax return (ATO Notice of Assessment)
• Bank statements showing regular salary deposits
• For self-employed applicants: income declarations or relevant tax documents

Proof of address

• Utility bills (electricity, water, gas)
• Rental agreement or property ownership documents
• Recent bank statements or credit card bills showing your current address

Banking information

• Bank account details for loan fund deposit
• Some lenders may request temporary access to your bank account via a secure platform (like Illion or Yodlee) to assess your financial health

Existing debts (if consolidating)

• Credit card statements
• Existing loan contracts
• Balance statements showing current debt amounts

5. Research and compare offers

Don’t settle for the first offer you receive. Comparing different lenders — including traditional banks, credit unions and online platforms — is essential to find the best rates and terms available in the Australian market.
When comparing offers, pay close attention to key factors already mentioned, such as:

Annual Percentage Rate (APR)

This represents the total cost of the loan, including both interest and mandatory fees. It’s the most reliable way to compare different loan offers transparently.

Loan term

Longer repayment terms generally mean lower monthly instalments, but you’ll pay more in interest over time. Consider what makes the most sense for your cash flow and long-term savings.

Approved amount

Ensure the amount offered is enough to meet your needs — without stretching your repayment capacity. Keep in mind that the net amount you receive may be lower than the approved amount if any fees are deducted upfront.

Additional fees and charges

Check for any:

• Establishment fees
• Monthly account-keeping fees
• Early repayment or exit fees
• Late payment penalties

Not all Australian lenders charge these fees, but it’s crucial to confirm before signing any contract.

Use loan calculators or comparison tools — such as those on Moneysmart or Finder — to estimate the true cost of each option and see how it fits into your budget.

Another tip if you’re already a customer of a bank or credit union, check if they offer exclusive benefits such as discounted interest rates or faster approvals.

6. Choose your lender and submit the application

Once you’ve compared your options, select the offer that best suits your needs and begin the formal application process — which, in most cases, can be completed entirely online.

Be prepared for the lender to conduct a formal credit check (also known as a hard enquiry), which may temporarily impact your credit score. This step is usually required to finalise the loan offer.

The processing time varies depending on the lender. Online banks and digital lenders often provide a decision within a few hours or even on the same day, while traditional banks or credit unions may take a few business days.

If approved, you’ll receive the final loan offer outlining:

• The approved loan amount
• Interest rate (fixed or variable)
• Repayment term
• Applicable conditions and fees

Take the time to review all terms carefully before accepting. If there’s a difference between the initial pre-approval and the final offer, don’t hesitate to ask the lender for clarification.

7. Sign the agreement and start making repayments

If you’re happy with the terms of the offer, go ahead and sign the loan contract to finalise the process. In most cases, this can be done digitally. Once signed, the approved amount is typically deposited directly into your bank account — often on the same day or even within a few hours, particularly when dealing with digital lenders or online platforms.

With more traditional banks, the process may take one to two business days, so it’s important to check the expected disbursement time — especially if you need the funds urgently.

After receiving the funds, it’s essential to keep track of your repayment schedule. Where possible, activate direct debit to ensure your payments are made on time. This not only helps you avoid late fees or missed payments, but some lenders may even offer a small interest rate discount for setting up automatic payments.

While most personal loans don’t require you to explain how the funds will be used, some lenders might ask for a brief description of the purpose, especially for higher amounts or longer loan terms. So, it’s a good idea to read the terms and conditions carefully before signing.

Can I get a personal loan with bad credit?

Yes, it’s possible — but the conditions are usually less favourable. If you have a low credit score, lenders may offer higher interest rates, approve smaller loan amounts, and apply stricter assessment criteria.

Still, there are some strategies that may improve your chances of approval:

Apply with a guarantor:

• Including someone with a strong credit history as a guarantor can strengthen your application and may give you access to better terms. Keep in mind that not all lenders offer loans with guarantors, so it’s important to check beforehand.

Look for lenders that specialise in bad credit loans:

• Some lenders and fintechs cater to applicants with lower credit scores and allow pre-qualification without affecting your credit file (via soft enquiries). This can help you compare options safely.

Take steps to improve your credit score before applying:

• Even small actions can make a big difference. Focus on repaying overdue debts, correcting any errors in your credit report, and avoiding multiple credit applications in a short time. Making payments on time is one of the most effective ways to steadily rebuild your score.

Frequently asked questions

Are personal loans taxable?

Generally, no. Since the borrowed amount must be repaid, it is not considered taxable income in Australia.
However, if part or all of the loan is forgiven — for example, through bankruptcy — the cancelled amount may be treated as income and could potentially be taxed. Always seek financial advice if you’re unsure.

Do interest rates vary a lot?

Yes. Interest rates vary depending on your credit score, the amount borrowed, and the lender’s assessment. Typically, applicants with good credit scores receive lower rates.

Personal loans may come with fixed or variable interest rates, so it’s important to compare both scenarios using loan calculators or online tools before committing.

Final considerations

Getting a personal loan can be a helpful way to balance your budget or fund important plans. But it’s essential to understand all the associated costs, evaluate your repayment capacity, and compare offers carefully before signing any agreement.

With good planning, clear information, and a bit of financial discipline, it’s possible to access credit responsibly — without compromising your long-term financial wellbeing.