Non-Conforming Personal Loans
Read about your personal loan options for less standard individual financial situations and compare with Savvy.
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What are non-conforming personal loans and how do they work?
Non-conforming personal loans are a type of personal finance specifically catered to applicants who, as the name suggests, don’t conform to the typical criteria requirements set by lenders as part of the loan process. There are two main categories when it comes to non-conforming personal loans, which address the two main reasons for individuals seeking this type of finance: low doc personal loans and bad credit personal loans.
Low doc personal loans
The first reason why you might seek a non-conforming personal loan is that you don’t have the required documentation to apply for a standard personal loan. This is typically the case for self-employed workers, as their income isn’t obtained via traditional means (e.g., PAYG payslips).
Low documentation (low doc) personal loans are designed to afford workers in this position the opportunity to supply alternative documents. In addition to identification documents like passports and driver’s licences, these typically include:
- ABN or ACN: your Australian Business Number or Australian Company Number will be required by your lender to assess the nature of your business and how it operates
- GST: some lenders will require that your business’ revenue has been registered for GST for a minimum of between 12 and 24 months
- Business activity statements (BAS): BAS documents are required for businesses registered for GST, as it helps them record incoming and outgoing funds to determine their GST bill or refund
- Profit and loss statements: a document that lays out your company’s income and expenses, of which your lender may require anything from a quarterly to annual statement
- Bank statements: another method of displaying your company’s finances which your lender is likely to need at least the most recent few months’ worth of. This can be business or personal banking, or both
- Income declaration: a declaration signed by your accountant confirming your income and that it’s true and accurate
These loans come with higher interest rates and fees than standard personal loans, as the lack of more “secure” documents like tax returns and payslips increases the lender’s sense of risk with the loan.
However, the borrowing range for these loans remain the same, with maximum amounts of around $50,000. They can also be turned around quickly because of the less complicated nature of their documents, allowing for fast and easy finance solutions for borrowers.
Bad credit personal loans
The second main purpose someone may require a non-conforming personal loan is due to a bad credit rating. Lenders look to credit scores as one of the most important indicators of your reliability as a borrower, so not having a great, good or fair score can sink a personal loan application before you’ve even started. Specialist bad credit lenders have entered the market in recent years to remedy that situation, affording individuals in need of financing access to funds.
In terms of their structure, these loans are essentially the same as other personal loans. As part of the application process, your credit history will be assessed, which is primarily done to ascertain your current financial situation and any recent defaults to determine whether you’re capable of servicing the loan.
Like low doc loans, bad credit personal loans are seen as being riskier for the lender, which in turn leads to an increase in their rates and fees. Borrowing power is also decreased significantly: bad credit borrowers will only have access to a maximum of $10,000 in loan funds and can typically repay them over a maximum of two to three years.
Despite all of this, though, these loans present as one of the most viable options for people with bad credit looking for flexible finance solutions.
Maximise your non-conforming personal loan approval chances
Improve your credit score
Making a concerted effort to improve upon your credit rating prior to applying for non-conforming finance is another way to raise your chances of success. Bad credit customers, for example, don’t have to turn their score around from a bad one to a great one.
However, if they take the steps required to improve the score, it will reflect more favourably on their application. Strategies can include paying off outstanding debts, or ensuring payments are made regularly and promptly, and lowering the limits on your credit cards
Build your savings
Alongside increasing your credit score, developing your savings is another way to increase a lender’s trust in you as a borrower. This shows a level of financial discipline that can come in handy when paying off a personal loan, as your lender will be able to see that you’re not the type to spend all of your money on a whim. More savings in your account also adds greater security to your loan repayments, as it means you can, in theory, support loan payments for longer if your income dries up.
Apply with a co-borrower
Submitting a joint application with your partner is another effective way to maximise your approval chances. This is because lenders are more confident that two income streams can support loan payments than one, as there’s a backup plan if one source falls through. Adding a co-borrower to your personal loan is also likely to decrease your interest rate and potentially increase your borrowing power.
Find someone to go guarantor
Similarly, finding a guarantor for your personal loan is a great way to increase your lender’s confidence in you as a bad credit or low doc applicant. Guarantors are a third party close to the applicant, such as a parent, sibling or partner, who agrees to take on the responsibility of fulfilling the loan’s obligations in the event that you become unable to do so.
Find someone to go guarantor
Perhaps the most important factor contributing to the success of your application is whether it’s a realistic one. Lenders will be able to tell whether the amount and term that you’ve chosen is feasible with your financial situation, and those that they don’t believe are achievable will be swiftly denied. If you value speed when it comes to these applications, working out roughly what you can manage ahead of time will save on delays endured by your lender returning with a counter-offer.
