Personal loans fill the gap when you need to pay for something but don’t have the big savings needed to cover the expense. However, before you submit an application to a lender, it’s a good idea to know how much you can borrow.
There are certain factors that come into play when determining how much you can borrow with a personal loan. These factors include how much you can afford to repay and your loan purpose, as well as the type of personal loan you are applying for.
Unsecured personal loans usually offer loan amounts of between $1000 and $50,000. An unsecured personal loan lets you borrow funds without using an asset as security. You get more flexibility and can use the loan to cover a holiday, car, renovations or any other worthwhile purchase. Some unsecured personal loans (such as Nimble personal loans) come with additional features such as the ability to repay your loan early without penalty.
Secured personal loans and car loans usually offer loan amounts of between $3,000 and $80,000. A secured personal loan is a line of credit that’s guaranteed against an asset you own or buy with the loan. These assets can be in the form of a car, equity in your home, high-priced jewellery or art, or monetary accounts such as term deposits. Secured personal loans are less of a risk for the lender and therefore generally come with lower interest rates. Bear in mind, however, that by taking out a secured loan you are risking your asset should you default on the loan.
What do lenders consider when determining how much you can borrow?
When applying for a personal loan there are several key pieces of information you will likely need to provide:
Your loan purpose: If you’re applying for a loan to purchase a car, the loan amount will be tied to the car’s value. If you’re applying to consolidate debt, this will also be tied to how much debt you have.
Your income and financials: How much you earn and how much you spend on expenses and other debt commitments will determine your ability to afford the repayments of a personal loan. The lender will also check your credit report.
Risk: If you already have a significant amount of debt, the lender may consider you to be a risk. They may also consider your loan risk if it is for a holiday, wedding or non-physical purchase.
How to get the personal loan amount you need
A good place to start when applying for a personal loan is to look at the four C’s:
Cash flow: How much money do you have to spend on repayments?
Improving your cash flow before you apply for a personal loan can make you less of a risk to lenders. Cut costs by paying off high-interest debt first to free up money. Evaluate your daily spending habits and cut out costs where you can. Ask for a raise (and get it). Get a second job.
Collateral: Is the asset you want to buy with your personal loan a sound investment?
Having something that’s easy to sell should you default on your loan will make a lender more likely to approve you for the loan amount you want. Consider a vehicle with slow depreciation, or ask a real estate agent to offer an estimated evaluation of your home once your renovations are complete.
Character: Are you someone who is going to prioritise paying off your loan?
Lenders want to see a track record of repayments on debts to demonstrate you are committed and responsible when paying back debt. Pay your debts on time and avoid too many loan applications. Lots of applications (approved or denied) is considered a blemish on your character.
Conditions: What is the purpose of the personal loan?
Policy governs how a loan is assessed. The more tangible the purpose of your loan, the more likely you are to have your loan approved. As mentioned above, a personal loan is more likely to be approved for a physical purchase than for a skiing holiday.
Thinking beyond the maximum loan amount
While it can be tempting to go with the lender that offers the maximum borrowing amount, there’s more to think about than how much you can borrow. When applying for a personal loan, also consider:
Interest rate: Check if the rate is fixed or variable. Is it competitive with other similar loan options?
Fees and other charges: Upfront fees, monthly fees and annual fees – these can all get very expensive. Consider the true cost of the loan by incorporating both interest rates and fees.
Loan terms: Variable rate loans generally offer loan terms between one and seven years, while fixed-rate loans offer loan terms between one and five years. Choose a loan term that allows you to pay less long-term but still aligns with how much you can afford in repayments.
Thinking beyond the banks
When you’re in need of personal finance and your bank isn’t offering the product you need or your application is denied, loans from non-banks are worth investigating. Non-banks, such as Nimble, include independent lenders, credit unions and building societies, who (thanks to their small size compared to a bank) are able to provide a more personalised service to help with your personal loan.
Personal loans from non-banks like Nimble offer the same features as a personal loan from a bank, including flexible repayment schedules and competitive variable or fixed rates. They can, however, offer more than your bank with:
Innovative lending solutions: Smaller lenders are continually innovating because the process of innovating is simpler than that faced by a large lender. At Nimble, we can accept an application through social media and have funds transferred to you within an hour of approval!
Specialised knowledge: Smaller lenders often specialise in one particular area. In the case of Nimble, we specialise in cash and personal loans up to $10,000, and so, we’re the knowledge experts in this space. All our energy goes into ensuring you get the best personal loan experience when borrowing between $300 and $10,000.
Simple processes: Application processes with non-banks are often significantly simpler. At Nimble, the process is made up of five simple steps:
1. Tell us what you need
2. Tell us who you are
3. Connect us with your bank (our smart tech runs through your data, doing all the hard work for you)
4. Verify income and expenses
5. Wait 60 minutes for your loan to be in your bank account.
Borrowing the right personal loan for you
Applying for a Nimble loan isn’t difficult, but there are some things you should consider before taking out a loan. Check out our top tips you may want to consider before applying and then contact us about your needs. No document uploads, flexible repayments, and 100% online. Get started today.
Disclaimer: Please note this content is provided as general information only and does not take into account your objectives, financial situations or needs. For advice tailored to your financial situation, it is advised that you seek guidance from an accountant or financial advisor. The above post refers to application software (“App, Apps”) that is not affiliated or associated with Nimble. We do not have any control or responsibility over the content of the Apps. Use of the Apps may be subject to further terms and conditions imposed by the App provider, the owner of the mobile operating system and/or other related parties. The above links belong to a variety of websites and not Nimble, so clicking on, and using them, will take you away from Nimble’s website meaning we’ve got no control or responsibility over the content. Nimble does not endorse and is not affiliated or associated in any way whatsoever to the businesses named in this blog post. The information contained in this article is correct at the date of publication.
