You might be considering a bank loan, if you are thinking about buying a car or travelling overseas. These loans are usually between $5,000 to over $10,000, depending on the amount you can afford and need to be paid off in 1-5 years.

A personal loan could sound good because it is a higher amount, may offer a lower interest rate than other types of credit and the repayments are spread over a long time. But keep in mind that the longer the loan term, the more you will pay in interest. Before you sign a contract and commit to a loan, it’s good to read these tips on borrowing money.

How do these loans work?

You first apply for the loan and the bank will assess your eligibility. Most banks have initial eligibility criteria that you have to meet. This normally includes:

• 18 years old or older
• Regular income
• Good credit rating
• Australian citizenship or permanent residency
• An Australian address

It’s a good idea to look at different banks as they offer different fees and interest rates depending on the bank. While it might be easier just to go with the bank you already have an account with, looking at about 2-3 other bank loans of the same size will give you a good idea of whether the option you are looking at is a good loan.

How do you apply?

Firstly, you will need to apply for the loan to find out if you are eligible. Filling out an application does not mean you will get the loan; if you don’t have the money to repay the loan or don’t meet the initial criteria, your application will get rejected by the bank.

Applying can be a lengthy process, as the bank will want to know as much information as they can about your finances. They will probably ask for your pay slips, bank statements and credit card statements as well as some ID (like your driver’s licence).

The bank will do a credit check on you to find out if you have any outstanding debts. If you want to see your credit report before you apply click here to find out more about getting your free 12-month credit check.

Many banks now have online applications for personal or car loans. If you look up the website of the bank you are with, they will have information on the different loans your bank offers.

Positives and Negatives

Positives:

• Bank loans often have lower interest rates than other loans and offer you a longer period to pay the loan back.
• They are quite thorough in checking whether you can repay the loan which makes it a bit easier for you; if the bank rejects your application maybe it’s time to think about other options.

Negatives:

• Different banks have different income requirements for loans; some have a $25,000 a year minimum income to apply. To make sure you can afford a loan, try Money Smart’s personal loan calculator.
• Because the time period to pay back the loan is longer, that means you have to be able to afford the repayments for a longer time as well. Keep this in mind especially if you don’t have a contract for your job as changes in your income could make a huge impact on paying your loan.

These loans may seem like your only option, but they may be the most detrimental in the long run. Read our article on the steps you can take to avoid getting a loan to see if there’s anything you can do differently.  

If you are having a financial emergency

If you are in need of money urgently, Money Smart has great Australia-wide information and contacts for housing, income support, emergency relief and financial counselling. The Department of Human Services also has some helpful information on crisis and special help payments that you might be eligible for. 

Check out Financial Counselling Australia to find a counsellor near you, or call 1800 007 007 to speak to one on the phone for free advice.

You can also call the National Debt Helpline, they are open every weekday from 9.30am-4.30pm and their chat is open until 8pm. They offer free counselling to figure out a debt solution that will suit you. 

Aboriginal and Torres Strait Islander people can call Mob Strong Debt Helpline on 1800 808 488. Monday to Friday, 9.30am to 4.30pm.

If you are in debt, call Way Forward on 1300 045 502. Monday to Friday, 9:00am to 7:00pm. If you’re in financial hardship, they can arrange a debt repayment plan on your behalf. This is a free service.

If you are struggling with your mental health in this hard time — please reach out. Call Beyond Blue on 1300 22 46 36, 24 hours a day. Or use their live chat service, available 24 hours a day.