CashPal’s Step by Step Guide for First Time Borrowers of Personal Loans

This guide is for Australians who are applying for a personal loan for the first time. It explains how personal loans work, how lenders assess applications, and how to choose the right product. It also gives clear steps to follow from the first check of your finances to your final repayment.

How personal loans work in Australia

A personal loan is a promise with a price. You get a set amount now and repay it in regular instalments over an agreed term, plus interest and fees. It can be unsecured or secured against an asset. Rates can be fixed or variable. You choose weekly, fortnightly, or monthly repayments.

Most lenders accept online applications and decide quickly. What you are offered depends on your credit history, your income, your spending, and what you already owe.

Secured versus unsecured loans

A secured personal loan uses an asset as security. For example a car. If you do not repay, the lender can take the asset and sell it. Secured loans often have lower rates. Unsecured loans do not require an asset. They are approved on your credit and capacity to repay. Rates are usually higher than secured loans. Unsecured loans are common for travel, medical costs, renovations and debt consolidation.

Fixed versus variable rates

A fixed rate stays the same for an agreed term. Your repayments stay steady which helps with budgeting. A variable rate can move up or down with market conditions. Your repayments can change during the loan term. Some lenders let you split your loan. One part fixed and one part variable. That can balance certainty and flexibility.

Comparison rate and why it matters

The comparison rate combines the interest rate and most fees into a single percentage. It helps you compare the real cost of different loans. If a rate looks low but the comparison rate is much higher, check the fees. Always compare by the comparison rate for loans with the same amount and term.

Loan terms and repayment frequencies

Personal loan terms usually range from 1 to 7 years. Shorter terms mean higher repayments but lower total interest. Longer terms reduce the repayment size but increase the total cost. Choose weekly or fortnightly repayments if it fits your pay cycle. More frequent repayments can reduce interest over time.

Step 1 – Check your finances and credit

Start with a clear view of your money. Add up income after tax. List fixed costs such as rent, utilities and transport. Include variable spending such as food and entertainment. Add existing debts and minimum repayments. The result is your free cash flow. That tells you how much you can repay without stress. Leave a buffer for rate moves or a surprise bill.

Check your credit score and your credit report. You can request your report for free from Equifax, Experian or illion. Confirm your name, address and account details. Fix any errors early. A higher score helps you qualify for better rates. Avoid new credit applications while you prepare. New applications can place enquiries on your file and may lower your score.

Improve your approval chances

1. Pay every bill on time for the next 3 to 6 months. Lenders look for clean account conduct.
2. Reduce your credit card limits if they are too high for your needs. Lenders assess limits as potential debt.
3. Pay down buy now pay later balances and short term loans. This reduces your overall commitments.
4. Keep your spending stable. Avoid large discretionary purchases before you apply. 

Step 2 – Decide your loan purpose and amount

Be specific about why you need the loan and how much is required. Ask for the smallest amount that solves the problem. A lower balance costs less interest and is easier to repay. If you are consolidating debt, total the balances and include any break fees. Build a simple repayment plan that fits your actual cash flow.

Step 3 – Compare lenders, rates and fees

Do not accept the first offer you see. Compare at least three options. Include a major bank, a digital lender and a credit union or mutual bank. Look at the comparison rate first. Then check all fees and features. Ask if the lender uses personalised pricing based on your score and profile.

• Interest rate versus comparison rate
• Establishment, monthly and early repayment fees
• Extra repayments without penalty and redraw availability
• Late payment fees and method of calculating interest
• Flexibility to change repayment dates or frequency 

Open Banking under the Consumer Data Right lets you share bank data securely with accredited lenders. Sharing data can speed up assessment and may support a sharper rate. Read the consent screen. Share only what is needed. You can withdraw consent later.

Step 4 – Get pre qualified or a rate estimate

Many lenders offer pre qualification or a rate estimate tool. These tools use a soft check that does not impact your credit score. You provide income, expenses and permission to view statements through secure data feeds. The lender then gives a guide rate and amount. This helps you shortlist without a full application.

Step 5 – Prepare your application

A complete application reduces delays. Gather the documents below before you start.

• Government issued ID such as passport or driver licence
• Recent payslips or other income proof such as Centrelink statements or tax returns for self employment
• Bank statements for the last 3 months
• Statements for credit cards, personal loans, car loans and buy now pay later accounts
• A summary of regular living costs using the lender template 

Check that your name and address match across documents. If your income varies, provide extra detail such as year to date totals and a letter of employment. If you are consolidating debt, include the account numbers and payout figures.

Step 6 – Submit your application and complete assessment

Once you apply, the lender verifies identity, income and expenses. Most will use bank data feeds to confirm transactions. The lender calculates serviceability. This is your capacity to repay after costs. They also review your credit file. The check may be a hard enquiry. Keep other applications to a minimum during this time.

Expect follow up questions. A fast response helps maintain momentum. You may be asked to explain a large deposit, a cash withdrawal or a recent missed payment. Be factual and concise. If a guarantor is involved, they will also need to provide ID and financial information and obtain independent legal advice.

If you are approved, the lender issues a loan contract. Read it carefully. Confirm the amount, rate, comparison rate, fees, repayment amount, frequency and due date. Check for early repayment costs and charges for extra repayments. Ask about hardship support if your income changes during the term.

Step 7 – Review your contract before you sign

Do not sign until you are satisfied that the contract matches the offer. If a clause is unclear, ask for an explanation in writing. Keep a copy of the contract and the schedule of fees. Set up your account access and communication preferences. Choose direct debit for automatic payments. Add reminders in your calendar so you never miss a due date.

Key terms to confirm before you accept the loan

1. Interest rate and comparison rate
2. Total amount of credit and total amount payable over the term
3. Repayment amount and frequency
4. All fees and charges including early payout costs
5. Default fees and the process for late payments 

Step 8 Set up repayments and manage the loan

Once funded, set up your budget to include the new repayment. Move the repayment date to just after your payday if allowed. That reduces the chance of a failed debit. If you can afford it, pay a little extra each time. Small extra payments can reduce total interest and shorten the term. If your lender offers redraw, check the conditions before you dip into extra funds.

Review your loan every 6 to 12 months. If your credit score has improved or rates have moved, ask for a better rate. If the lender will not adjust it, consider refinancing to another provider. Account for any break fees before you switch.

Alternatives and safety nets

A personal loan is not always the right answer. Consider these alternatives when suitable.

• No Interest Loans for essential goods and services for eligible applicants
• A debt consolidation loan that replaces several high rate debts with one repayment
• A balance transfer credit card for short term consolidation, only if you can repay within the promotional period
• A savings plan for non urgent purchases 

If you are under financial pressure, contact your lender early. Ask for hardship assistance. Options can include a reduced payment plan, a short payment pause, or an extension of the loan term. You can also seek free help from a financial counsellor through the National Debt Helpline.

Common mistakes to avoid

• Borrowing more than you need which increases your total interest cost
• Focusing on the headline rate and ignoring the comparison rate and fees
• Applying with several lenders at once which can harm your credit score
• Accepting add on products you do not need such as consumer credit insurance without comparing value
• Missing repayments due to poor timing with your pay cycle 

Practical example

Chris earns 5,500 per month after tax and pays 2,800 in regular costs. There is 2,700 left for savings and debt. Chris wants to borrow 10,000 for medical costs over 3 years. The best option found has a comparison rate of 11.5 percent and no monthly fee. The monthly repayment is about 330 which fits the budget with room to spare. Chris sets a fortnightly debit of 165 to match the pay cycle and adds an extra 20 each fortnight. Those extra payments reduce the total interest and the term.

Frequently asked questions

How much can I borrow on a first personal loan?

The amount depends on your income, expenses, existing debts and credit history. Many first time borrowers are approved for between 5,000 and 30,000. Lenders set different limits and rules. Use a borrowing power calculator to gauge a safe range. CashPal provides up to $5,000 personal loans.

Will a personal loan hurt my credit score?

A hard enquiry can reduce your score for a short time. On time repayments can help you build your score over the long term. Avoid multiple applications. Apply only when you are ready and confident.

Is a secured loan always cheaper?

A secured loan often has a lower rate but you risk the asset if you cannot repay. Do not secure the loan with an asset you cannot afford to lose.

Can I repay a fixed rate loan early?

Many lenders allow extra payments on fixed rate personal loans. Some charge an early payout fee. Check the contract before you sign.

What if my income changes?

Contact your lender straight away. Ask for hardship options. You can also call the National Debt Helpline on 1800 007 007 for free support.

What fees should I look for?

Common fees include an application or establishment fee, a monthly service fee, a late payment fee and an early payout fee. The comparison rate helps you weigh these costs.

Resources and calculators

• Moneysmart personal loan calculator and budget planner
• National Debt Helpline for free financial counselling on 1800 007 007
• Good Shepherd No Interest Loans program
• Credit reports from Equifax, Experian or illion
• Australian Financial Complaints Authority for dispute resolution 

Final checklist before you apply

1. Confirm the loan purpose and the smallest amount that meets it
2. Build a budget that allows the new repayment with a buffer
3. Obtain and review your credit report and score
4. Compare at least three lenders by comparison rate, fees and features
5. Prepare your documents and complete a clean application 

Important Notes

A personal loan can be a useful tool when used with care. Choose a product that fits your cash flow. Keep your repayment plan simple. Stay on top of your budget and ask for help early if you need it. That approach protects your credit health and gives you the best chance to achieve your goal at the lowest possible cost.