Getting a personal loan is a financial decision that you can’t make easily. It is a long term commitment that you’re making with your chosen financial provider, and it is one you should do your research with before applying. Frantically applying for personal loans every time you get behind in your finances or every time you want something new, is a sure fire way to land yourself in a vicious debt cycle. You should do your research and go through our checklist. Check your current situations with the following points and answer the question, “Am I ready for a loan?”
Am I Ready to Apply For a Loan?
Am I currently able to support myself financially?Believe it or not, but the majority of people aren’t applying for loans when they are in financial difficulties. You need to able to show a lender that you are more than capable of repaying a personal loan before you get one. Your ability to repay is shown through your current level of income, savings, assets and your debt-income ratio. If you can show that you are financially stable and can support your current financial situation, then lenders will be more than willing to accept your application. It may seem silly that financial institutions only lend to people who don’t desperately need it, but the terms and conditions that have been put in place, have been put there to protect both the borrower and the lender.
Do I meet the lending criteria?A loan’s lending criteria is something you should check right away before you even consider applying for a personal loan. Most New Zealand financial institutions will have their own set of conditions and lending criteria, but some conditions that are the same, no matter where you go:
- Must be 18 or older
- Must be an NZ resident or be a non-resident with an NZ work visa
- Have proof of identity and can provide details of income and banking history
Does my credit score meet the criteria?Everyone over the age of 18 that has ever made a financial commitment in the form of a line of credit, or a payment plan will have a credit score. A credit score is a given rating (from 0 – 100) based on your credit history which shows the determined level of risk involved when lending to you. The lower the score, the higher the perceived risk. Your payment/credit history determines the score you get, so we recommend reading up on some of our other blogs about credit scores if you wish to find out more. Financial institutions have minimal credit score thresholds that you must meet in order to be accepted. Generally, these thresholds are around 300 -350, but they vary between institutions. Additionally, different financial institutions use different credit bureaus for their credit score, so not all institutions measure past actions the same. If you wish to get a measure on what your credit score may be, you can log into Credit Simple and have it done online for free.
Have I applied for a loan recently?Applying for multiple loans within a short period of one another is not a good thing to do. Some people might think that they would get numerous loan offers and be able to shop for the best rate, but that is not how it works. Instead, lending organisations will see the multiple applications for credit, and they will be less inclined to lend to you since you seem desperate for finances. If you are thinking about applying for a personal loan, you should find out when was the last time you applied for a form of credit (i.e. personal loan or credit card). If the answer is within the previous four months and you were declined, then maybe it is best to wait. Check your credit score after that four months and see if it exceeds the minimum 300 – 350 threshold and then try again. It doesn’t hurt to ask before you apply, what the financial institutions minimum score is. Saves you from finding out the hard way and having to wait another four months.
Do I have an idea of what my repayments could be?You should have an idea of what repayment amounts you can manage before you apply for a loan. Committing to a financial obligation such as a personal loan is not a good idea if you don’t know what you are getting yourself into. Use an online personal loan calculator and find out roughly, how much you could expect to pay before you apply. Doing so will allow you to work out the best repayment plan that will work for both you and the lender.
Do I already have too much debt?Having too much debt is relating to our point of applying for recent loans. If you are already paying off multiple lines of credit, then it might be best not to apply for another one. Financial institutions will be aware of the other debt you have when they conduct a credit check. Having multiple forms of debt may deter them from lending to you as they may believe an additional loan would be too much to handle and you might not be able to manage all payments comfortably. If you do have multiple forms of debt and you are having difficulties managing all your payments, it might be best to look into getting a debt consolidation loan to simplify your financial situation. Combining your current debts, into one, will reduce you weekly payments amount and will give you more breathing room with your finances.
Final ThoughtsA personal loan is a financial commitment that we need to think carefully about as it is one we are bound to for at least six month. We need to make sure we are financially capable, think critically of our current financial situation and we should check our credit score and see how we appear to lenders. We should only borrow money when we know we don’t need it. It sounds like a paradox, but it is true. Financial institutions will not lend to you if you are unable to pay it back, you must be able to show that you are capable of paying back the loan before they accept you. If you wish to read more about personal loans, you can check out our personal loan page on our website or look at our FAQ Page to find out more.