What are Personal Loan Borrowing Limits in Australia?

"How much can I borrow?" is usually the first question, and the honest answer is that it depends on far less obvious things than your income. Two people on identical salaries routinely get very different answers, and the difference is almost always what they already owe.

Understanding personal loan limits

There is no legal maximum on a personal loan in Australia. Minimum and maximum amounts are set by each lender's own policy, which is why two lenders can look at the same borrower and land in very different places.

What a lender will actually advance comes down to serviceability: whether the repayment fits alongside everything else you are already paying, with enough left over to live on. That test, not the advertised maximum, is what decides your number. Our personal loans page covers what we arrange, secured and unsecured.

What actually decides your capacity

Income, and how reliable it looks. Steady PAYG income is the simplest case. Casual, contract, commission and self-employed income all count, but lenders treat them differently and may want a longer history. If you are self-employed, see ABN and sole trader lending and low doc car loans for the self-employed for how that assessment differs.

Existing commitments, which matter more than people expect. This is where capacity disappears. Every other loan counts, and so do credit card limits whether or not you have drawn on them, because a lender assesses the limit, not the balance. Buy now pay later arrangements show in your bank statements whether you mention them or not.

Your credit history. Lenders look at your credit file, and every application is recorded there whether it is approved or not. Applying to several lenders to see who says yes damages the thing being assessed, at the worst possible moment.

Dependants and living costs. Lenders apply a floor for household expenses, so a bigger household reduces capacity on the same income.

Responsible lending obligations. Lenders are required to assess whether a loan is suitable and whether you can repay it without substantial hardship. A lender declining an amount is often that obligation working as intended.

The role of interest rates

Rates vary widely between lenders and between borrowers, depending on:

• Whether the loan is secured or unsecured
• Your credit history
• The loan term
• The lender's assessment of risk

A lower rate means a lower repayment, which can increase what you are able to borrow. The important thing when comparing is the comparison rate rather than the headline rate, since it folds in the fees that the advertised number leaves out.

Thinking about repayments

Before committing to any amount, understand what the repayment does to your month. Four things drive it:

• The amount borrowed
• The interest rate
• The loan term
• The fees attached to the loan

The trade-off worth understanding: a longer term lowers the repayment and raises the total interest paid. A shorter term does the reverse. Neither is automatically right, and the only numbers worth comparing are the ones in a quote prepared for your situation. Be careful of judging a loan by its monthly figure alone, which is the same trap covered in our guide to whether consolidating debt actually helps.

Secured or unsecured

A secured loan is backed by an asset, usually a vehicle. Because the lender's risk is covered by something it can recover and sell, secured lending is generally priced lower and can allow a larger amount. See what a secured loan is for how the security works, and car loans where the asset is a vehicle.

An unsecured loan has no asset behind it and is priced for that. It suits things you cannot point at: a wedding, travel, or a renovation.

If there is an asset involved, say so early. It usually changes both the structure and the amount available.

The application process

Lenders generally want identification, evidence of income, recent bank statements and details of your existing commitments. Having those ready is the single biggest thing that speeds an application up, and our guide to verifying your income covers what gets asked for.

Pre-approval is worth understanding properly: it tells you where you stand before you commit to a purchase, but it is conditional rather than guaranteed, and it is still recorded as an application.

Improving your borrowing capacity

Most of this is unglamorous and it works:

• Reduce or close unused credit card limits. A limit you never touch still counts against you.
• Clear small balances, particularly buy now pay later, which lenders see in your statements.
• Keep your accounts clean in the months before applying. Dishonours and overdrawn periods carry more weight than people assume.
• Do not shop applications. Get matched to one lender that fits, then apply once.
• Consider security, if there is an asset the loan could sit against.

Where a broker fits

Because limits and serviceability rules are lender policy rather than law, the useful work is knowing whose policy fits your situation before anything is lodged. That is the difference between one approval and three declines sitting on your file.

This article is general information only and is not financial advice. Lender criteria vary between lenders and change.

Damo Treadgold is the director of Treadgold Finance, an FBAA-accredited finance broker on the Sunshine Coast, arranging personal, vehicle, business and equipment finance Australia-wide.

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