You want to apply for a personal loan, so you look online and find a range of very enticing offers; interest rates so low that you apply immediately, not wanting to miss out on the opportunity.
You know you can comfortably meet your repayments, you have a stable income and you aren’t borrowing more than you need for a specific purpose.
After hours, days, or even weeks of waiting to hear from the lender to discuss approval, you finally receive your loan documents to review and sign … and notice the interest rate is much higher than the advertised rate you first saw and applied to receive.
So what gives, and why aren’t advertised personal loan rates the same as the actual rates?
Let’s take a closer look at how lenders assess applicants on risk and their credit score, and why (until now) it’s been hard for consumers to find clarity on what their actual rate will be.
If you want to see the actual rate you can get on a personal loan today, simply use the Money.com.au Smart Form to compare real, personalised loan offers from Australian lenders.
Unfortunately, there’s very little way to tell if you’ll be offered the same rate as you see advertised online.
Each lender will have its own criteria for risk assessments, but it’s unlikely you will ever get the rate you see advertised as ‘From X%’ simply because it would require anyone to be absolutely perfect and for there to be zero risks in lending the money.
On paper, this makes sense, but the reality is that we are all different, and your credit profile and history would need to be flawless. In general, people with flawless credit profiles who can comfortably wait around to save money don’t take out personal loans.
Imagine you are living with one of your friends, and they ask if they can borrow $100 to pay their portion of the rent. Previously, you thought this friend was quite financially stable, had a good job, always paid their bills on time, and has never had any difficulties with money.
Now imagine they ask to borrow $10,000. You have the money, you’ve saved it up for quite a while. What thoughts go through your head?
These aren’t unreasonable questions to ask of someone if they’re borrowing money as a friend, so imagine if your business was reliant on that money as well. In the world of personal lending, lenders are first and foremost a business.
They need to take care of their rent, but also their staff, their profits, their shareholders, and numerous other dependents that make risk assessment a serious and strict process.
This is why our credit score is so important, and also why bank statements can be a simple, but crucial aspect of determining someone’s reliability in borrowing and repaying the money; it affects the actual loan rate you can qualify for.
Your credit report is a history of borrowing and other personal and financial information kept by credit reporting agencies. Your credit score boils all this information down into a single number that represents your reputation or quality as a borrower - the higher the score the better.
Lenders use your credit score to profile the level of risk you present as a borrower and help decide whether to lend you money and what to charge if they do. Credit scores range from 0 to 1,000 or 1,200, with 1,000 and 1,200 being excellent scores.
You can check your credit score for free by with an online credit agency such as:
To get your score you may have to sign up and provide an email address and a password. Once you’ve got an account you will need to provide further details like your:
There’s no need to pay to access your credit score so avoid providers who ask for credit card details.
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.
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