How To Apply For A Personal Loan: A Step by Step Guide

Author: Alasdair Duncan

Across New Zealand, most banks and other lenders have a fairly standardised process for applying for a personal loan. Here’s what you can expect when you apply for a personal loan, and the steps you’ll need to take.

A personal loan can provide a cash boost when one of life’s expenses arises. Whether you wish to fund a major purchase, like a car or a wedding, or even consolidate your existing debts, you may be considering a personal loan. So how do you apply, and what happens if you’re unsuccessful?

If you’re considering applying for a personal loan, then the process may involve three particular steps:

  1. Researching the various loan products available on the market
  2. Gathering the necessary documentation you’ll need to apply
  3. Submitting your application for the loan product

In this article, we’ll consider each of these steps. As well as some additional questions you may have about how to apply for a personal loan.

How To Apply For A Personal Loan: A Step by Step Guide

How do you research personal loans?

If you are considering applying for a personal loan, your first step might be to research what providers on the market are offering personal loans, and what might be suitable for your particular needs. Generally, when considering personal loans, it’s important to keep several factors in mind.

Some key things to consider are:

  • The interest rate: Interest on a loan is the amount that you’ll repay on top of the amount you have borrowed, which is known as the principal. It can vary based on a number of factors, such as whether the loan is secured or unsecured and your credit score.
  • Fees and charges: Some loans come with establishment or ongoing fees, and some have fees for missed or even early payments. It’s important to get a sense of how much you’ll be charged.
  • The comparison rate: This is a figure that estimates the total cost of the loan per year. It takes into account both the interest rate and most fees and charges, allowing you to get a better picture of your potential costs.
  • The loan term: The term of a loan refers to how long you’ll have to pay it back. A loan with a five-year term may have lower repayments than a loan with a one-year term, but you may end up paying more in interest and fees over the life of the loan.
  • Flexibility around additional repayments: Some lenders may charge a fee if you make additional repayments to pay off a loan more rapidly, but others don’t. So it is important to keep this in mind if you want to make additional repayments without a penalty.
  • Features: Speaking of extra repayments, some loans come with helpful features. For example, a redraw facility enables you to withdraw funds if you are ahead on your repayments and need the cash for another purpose.
  • Eligibility criteria: It is worth checking the eligibility criteria of any loan product to get an idea of how likely you are to be approved. For example, some loans may look appealing but may require an excellent credit score.

If you know the amount that you wish to apply for, then you can compare personal loans with Canstar to get a sense of what’s on the market. You can also see which personal loans won awards in Canstar’s Star Ratings.

→Related article: Things to Consider Before Getting a Personal Loan

What documents do you need to apply for a personal loan?

When applying for a personal loan, there are certain documents you’ll need to provide. This is in order to prove your identity and demonstrate to your lender that you are employed and have a regular income. It can be a good idea to gather these documents before you begin the application process. In general terms, you are likely to need:

  • ID documents such as a driver’s licence or passport to prove that you are aged over 18 and a New Zealand resident
  • Have a good credit rating
  • Be a New Zealand citizen or permanent resident
  • Not currently an undischarged bankrupt
  • Have proof of a New Zealand home address
  • Provide proof of your income – usually payslips
  • If you’re buying a vehicle, provide details about the car you’re buying. This is often the registration number, price, and dealer or seller’s details
  • Provide details of any other loans or credit cards that you have – other debts, basically

You may not need to provide all of this information, but it is a good idea to have it ready, depending on how strict your lender’s requirements are.

Compare Personal Loans with Canstar

The table below displays some of our referral partners’ unsecured personal loan products for a three-year loan of $10,000 in Auckland (some may have links to lenders’ websites). The products are sorted by Star Rating (highest to lowest) followed by company name (alphabetical). Use Canstar’s personal loan comparison selector to view a wider range of products on Canstar’s database. Canstar may earn a fee for referrals.

Compare Personal Loans with Canstar

How do you apply for a personal loan?

Most major lenders will allow you to apply for a loan either in person, over the phone or online. If you are already a customer with a bank or financial institution, then you may not need to provide the proof of identity documentation listed above. Typically, you can expect to hear back from a lender a few days after you apply. However, they may have additional questions to ask for further supporting documentation.

Once your loan application is approved, you will be sent documents by your lender, either electronically or by mail. You’ll need to sign and return these. Typically, if you have been approved for a loan, the funds will be accessible to you a short time after the application is processed.

Can you make multiple loan applications at the same time?

Yes, you can make multiple loan applications at one time. However, each application can lead to a credit check, which, causes a small drop in your credit score. So making multiple loan applications to different lenders within a short space of time can negatively affect your credit score. For this reason, it may be advisable to carefully consider your options. Only apply for loans you think you will want to take out, from lenders you think you’ll want to deal with.

Weigh up lenders based on factors such as the price and features of their loans and your eligibility, and apply for the one loan you feel is most suitable for you.

What happens if you are rejected for a personal loan?

If your loan application is rejected, then it is important to understand why a lender might have rejected you before applying for another. Lenders in New Zealand are bound by responsible lending laws, and it is a condition of their licence that they do not give credit if they believe a borrower cannot pay it back.

A lender may deny your loan application if there are defaults (i.e., overdue payments or payments for which the debt collection process has started) on your credit report, if you currently have payments that are more than 14 days overdue, or if your income or savings history indicates that you might struggle to pay the loan back.

What if you don’t meet the lender’s eligibility criteria?

If you feel you may not meet the lender’s eligibility criteria, then a loan guarantor may help. This is a trusted person who can vouch for you and be responsible for the debt if you are unable to meet your required repayments. Should you default, the guarantor steps in to cover your payments. This could strengthen your chances of approval.

If you are self-employed or a freelancer, you may not be able to provide regular payslips to show a lender proof of your income. In this situation, you may need to provide tax returns/financial records to prove income.

Can you apply for a personal loan with bad credit?

If you have bad credit, you may still be able to get a personal loan. However it will almost definitely come with higher interest rates, and you may face stricter terms.

There are some personal loans catered to those with bad credit. These are typically offered by non-bank lenders. And the application process may be stricter than for other kinds of loans. For example, lenders may make enquiries about your personal circumstances and the reasons behind any black marks on your credit score, such as bankruptcies.

How can you improve your credit score?

If your application for a personal loan is rejected because of a low credit score, or if you want to be in better financial shape before you apply, there are a number of steps you can take to improve your credit score:

  1. Pay your existing loans and debts on time
  2. Pay your bills on time
  3. Think carefully before applying for any new credit
  4. Contact your credit provider or a financial counsellor if you need help
  5. Check your credit report for any inaccuracies
  6. Hold on to credit cards you can manage
  7. Lower the limit on any credit cards you have

Compare Personal Loans with Canstar

author andrew broadleyAbout the reviewer of this page

This report was reviewed by Canstar Content Producer, Andrew Broadley. Andrew is an experienced writer with a wide range of industry experience. Starting out, he cut his teeth working as a writer for print and online magazines, and he has worked in both journalism and editorial roles. His content has covered lifestyle and culture, marketing and, more recently, finance for Canstar.

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