What the bank looks at when you ask to borrow money


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Borrowing gives you the flexibility to realise your dreams sooner than you otherwise could- whether that's buying a home or investment property, or applying for another type of credit product or service.

Most of us will apply for a loan at some stage in our lives, and if all goes to plan, your application will be approved - giving you the money you need, when you need it.

The type of loan you apply for will depend on what you're buying. For example, you'll need an owner occupied home loan to buy a property for you and your family to live in, compared with if you plan to rent the property as an investment.

what the bank looks for when you apply for a loan

Let's start with what banks look at when reviewing loan applications.

What do banks consider when reviewing loan applications?

Lenders go through a range of checks before issuing a loan or credit product to encourage responsible borrowing and spending habits. These include checking:

Credit history

Lenders can find out about your credit history through credit reporting bodies - Equifax, Experian, and Illion.

These organisations keep records of the loans you have applied for and how you've managed repayments. If you have made late repayments or defaulted on your credit reference checks in the past, this will likely be documented in your credit report.

Your ability to maintain repayments

Higher interest rates increase the repayments you need to make on a variable rate loan. You might have enough cash flow to meet loan repayments at current interest rates, but would that still be true if interest rates went up?

Before a bank or lender issues a loan, they need to be confident that you can meet higher repayments if needed. This protects consumers from overextension and ensures their ongoing financial wellbeing.

Security for the loan is adequate

In general, the property you're buying with a mortgage is used to secure the loan - if you are unable to repay the debt, the lender can sell the property to recoup their money.

But the lender might not accept the property as security if it's too small, or in a location or condition that could make it difficult to sell, for example.

Some lenders may also accept a guarantee from a family member as security supported by property owned by the family member.

This security can allow you to borrow a larger amount of money, however, the guarantors asset is also at risk and could then be used to repay the debt if ever you were to default and your own security property was not able to clear the debt in full.

How to give yourself the best chance of securing a loan

Before you apply for a credit product, there are several steps you can take to help increase your chance of success.

Be smart with savings and spending

In the year or months before you apply for a loan, take stock of your savings and spending habits. How does your cash flow look? Lenders will need to check that you have the ability to manage a debt, even if you already have money for a deposit.

Maintain a consistent income level

This should be no problem if you receive regular income from an employer, however if you're casual or self-employed, you may need to provide extra proof that your income will be reliable enough to allow you to meet your repayments throughout the life of the loan.

Keep your credit history clean

Making loan and credit card payments on time can help you maintain a good credit history on credit reference checks. You can request a free copy of your credit report once every three months from Equifax, Experian or Illion to check your record.

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Diana Sitnikoski is the chief of credit operations at Bank of Sydney. She joined Bank of Sydney as a credit manager in 2005, before assuming her current role in December 2016. Diana brings with her more than 20 years' experience in retail and commercial lending, and holds a Bachelor of Economics from the University of Western Sydney and a CPA designation.
Jackie Veepe
November 1, 2023 5.16pm

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