Getting a loan isn’t just about filling out an application and crossing your fingers — it’s about understanding your financial situation and setting yourself up for success. Whether you’re looking to borrow for a car repair, to consolidate debt, or to simply keep up with bills, a solid financial health check will ensure that you’re ready for what comes after borrowing.
Here’s our guide to help you assess your finances before applying for a loan in Australia, with tips on budgeting, debt management, and what lenders look for.
Evaluate your income and expenses
The first step in any financial health check is understanding where your money is going. Start by reviewing your income (from your job, side hustles, or any other sources) and compare it with your regular expenses. Knowing how much you have left over at the end of each month is key to determining whether you can handle additional loan repayments.
Step 1: Review Your Income
Start by taking note of all sources of income, such as:
Your primary salary: Include your regular paycheck or earnings from your full-time job.
Side hustles or freelance work: Any additional income you earn through part-time gigs, freelancing, or online platforms like Airtasker or Uber.
Other income sources: This might include government payments like Centrelink benefits, rental income from investment properties, or dividends from shares.
By calculating your total income, you’ll have a clear understanding of how much money you have coming in each month.
Step 2: Assess Your Expenses
Next, break down your spending into two categories:
Fixed Expenses: These are necessary and recurring payments like:
Rent or mortgage repayments.
Utility bills (electricity, gas, water).
Insurance premiums (health, car, or home).
Transportation costs (public transport, fuel, car loans).
Variable Expenses: These include discretionary spending, such as:
Dining out and takeaway meals.
Entertainment subscriptions (Netflix, Spotify).
Shopping (clothes, gadgets, or other non-essential items).
Leisure activities or hobbies.
Once you have a clear picture of both fixed and variable expenses, compare them against your income. The amount left over is your disposable income, which determines whether you can comfortably afford additional loan repayments.
Pro tip: Create a detailed budget using an app or a spreadsheet to track your income and spending. This will give you a clear picture of where your money is going, and where you might be able to cut back if needed.
Look for areas where you can reduce discretionary spending, like dining out, entertainment, or subscriptions you don’t really need. The more room you have in your budget, the easier it will be to manage loan repayments.
Assess your debt situation
Before taking on any new debt, it’s important to evaluate your existing financial commitments. Do you already have credit card debt, car payments, or a mortgage? Understanding your current debt load is critical in determining whether you can afford to take on a new loan.
Lenders often use a ratio called the debt-to-income (DTI) ratio to assess your financial health. This ratio compares your monthly debt payments to your monthly income. Ideally, your DTI ratio should be below 40%, meaning that no more than 40% of your income goes toward debt repayments. If your DTI is higher than this, lenders might see you as a risky borrower.
Pro tip: If your DTI ratio is high, consider paying down some of your existing debts before applying for a loan. This not only improves your chances of getting approved but also helps lower your monthly financial obligations.
Check your credit score
Your credit score plays a huge role in whether you’ll get approved for a loan and what interest rate you’ll be offered. The higher your credit score, the better your loan terms will be. In Australia, credit scores typically range from 0 to 1200, with anything above 600 considered a good score.
Here’s some tried and tested ways you can improve your credit score:
Pay your bills on time. Late payments can hurt your credit score.
Reduce your credit card balances. High balances on your credit cards can signal to lenders that you’re overextended.
Limit new credit applications. Applying for multiple loans or credit cards in a short period can negatively affect your score.
Pro Tip: You can check your credit score for free through various online services in Australia. Review your report for any errors and ensure everything is up-to-date.
Set clear financial goals
Before you apply for a loan, be clear about why you need it and how much you actually need to borrow. Taking out more than you need can lead to higher interest payments and longer repayment periods. On the flip side, borrowing too little might leave you scrambling to cover all your expenses.
Common reasons Australians take out personal loans include:
Emergency medical expenses
Lenders will ask you what the loan is for, so be prepared to explain your plans. Whether it’s for home renovations, debt consolidation, or a special purchase, having a clear goal can make the process smoother.
Choose the right loan type
Not all loans are created equal. Depending on your needs, you might be better off with a personal loan, a car loan, or a debt consolidation loan. Each type of loan comes with its own interest rates, fees, and terms, so it’s important to choose the one that’s right for your situation.
At Lendela, we match you with loan options personalised for your unique situation and profile. Take the time to avail yourself of all available options out there before making a decision, because that’s the only way to make an informed decision that complements your financial goals.
From Lendela’s data, we know that the most common reasons Australians have taken out personal loans over the past twelve months include:
Medical expenses
Recurring bills
We match you with loan options personalised for your unique situation and profile. Take the time to seek out all available options for you before making a decision, because that’s the only way to make an informed decision that complements your financial goals.
If you’re in a hurry or in a pickle, using a loan matching platform like Lendela will help you find your ideal loan in much less time — our reverse auction model matches borrowers with personalised loan options from Australia's top lenders, all with a single two-minute application.
Plan for repayments
Once you’ve gotten your funds, it’s important to stay on top of your repayments. Missing payments can negatively impact your credit score and lead to harsh penalties that could lead some to spiral. Make sure your budget accounts for the monthly repayment amount, and if possible, set up automatic payments to ensure you never miss a payment.
Pro Tip: If you have extra cash available, consider making additional payments toward your loan. Paying off your loan early can save you on interest costs and improve your overall financial position.
Taking out a loan can be a great way to achieve your financial goals, but it’s important to go in with a clear understanding of your financial situation. By performing our 6-point financial check, you’ll not only increase your chances of getting approved for the rate and amount that you want, but also set yourself up for a quicker, simpler, and less stressful borrowing experience.
Why use Lendela?
Lendela puts you back in control of your loan options — instead of going to multiple lenders and never getting the rate you want or offer you need, our reverse auction model brings all your personalised loan options in Australia straight to you and in a fraction of the time.