Have you ever applied for a personal loan where you meet all the credentials only to find that you’ve been rejected because you receive Centrelink payments or have bad credit? One of the first things that lenders look at is your income, which makes sense since that tells them exactly how you’ll be able to afford the repayments. And that’s why many lenders will not engage with Centrelink recipients. However, it does not mean getting your loan application approved is impossible.
If your application has been declined, other lenders may be willing to grant you a loan. But before you apply for a new loan, you should be aware of a few things first. This blog post will help guide you on what to do when getting a personal loan if you receive Centrelink benefits.
How to Secure a Loan If You’re on Centrelink
As mentioned above, lenders check your income. If you have listed Centrelink as part of your income, they may still consider your application. A huge deciding factor here lies in the percentage of Centrelink in your total income. Does it make up a big portion, say 50%? If that’s the case, the lender will likely reject your application. However, if your Centrelink income makes up less than 50% of total income, you’re in luck. Most lenders will look at other factors, such as your debt-to-income ratio and your credit history.
The key is to have other income sources if you would like to get a hasty approval on your loan. Also, it greatly helps if you reduce the number of applications you send out since it can have a negative effect on your credit rating. The lower your credit rating is, the less chance you’ll get approved of the personal loan.
To secure the loan whilst on Centrelink, you should have other sources of income and a positive credit rating. These things tell the lender that you are a reliable borrower, especially when repaying the loan.
There are other ways to obtain a loan, which are outlined later in the article. However, most of the alternatives only cater for borrowers looking for a low-amount loan. If you seek a more considerable amount to borrow, the best choice is to go for a secured personal loan.
Since it is a secured loan, you have to provide security, which is typically a house or a car. The lender will tell you which assets they accept. Bear in mind that the security will serve as a way for the lender to recoup their losses if ever you fail to repay the money you borrow. Therefore, you will lose that asset should you choose to avoid repayments.
Dos and Don’ts of Getting a Personal Loan for Centrelink Recipients
Getting a loan can help in different circumstances. You may require extra money for a one-off expense, or perhaps you need to pay for an expensive hospital or veterinary bill or a car repair. Regardless of what you will use the borrowed money for, you have to pay attention to certain dos and don’ts to ensure you don’t get into financial hardship. It’s a common pitfall that many other borrowers experience, whether they receive Centrelink payments or not.
So, before you proceed in taking out a personal loan, here are the things that you need to know.
First, let’s give you the DOs:
- Check the requirements – All lenders have conditions before they accept an application. Read the requirements first before you apply. Often, you can find the criteria that each applicant has to meet on the lender’s website. If you cannot get the information you need, simply contact the bank or lender. While getting declined once is not a bad thing, sending another application to other lenders can have a negative impact on your credit score. You have a lower risk of getting rejected if you know the requirements prior to the application. Some of the most common requirements are:
- Centrelink benefits should be less than 100% of the income.
- You receive over $1,600 a month or $400 a week for your income (whether or not it is from Centrelink will be up to the lender)
- You’re over 18 years old.
- You are an Australian or a resident for at least three months at the address specified in your application.
- You receive Centrelink benefits because you are a single parent or with an aged pension. Mobility allowances, child care benefits, and disability support pensions may also be accepted.
Some lenders allow applications from recipients of Centrelink benefits under Jobseeker and Youth Allowance, but others may not. Once again, check with the lender before you send the application.
- Calculate the loan – The interest rate, fees, and charges, along with the principal amount, should all be considered against your budget. Can you really afford the loan? Most loans have late fees and penalties, which can quickly increase the payments you need to make each month. That’s on top of the interest rate and the loan, plus your daily expenses. If you do not think you can afford it, you may want to look for other sources.
- Repay on time – If you have any issue with the repayment, quickly call the lender. Most lenders are willing to give you some flexibility. Although it’s temporary and you may have to pay immediately once your finances are in order, it can be very helpful.
- Have a clear purpose – Why do you need to borrow money? Once you have the reason down pat, ensure that you use the money for that specific purpose right away. That way, you don’t end up using it for other reasons, and you have to borrow money again.
What about the things that you should avoid doing? Here are the top DON’Ts when getting a loan whilst receiving Centrelink benefits:
- Don’t send too many applications to different lenders – Applying to several lenders will hurt your credit score, which can affect your eligibility for certain loans. Sending an application is a direct enquiry to the lender, resulting in deductions of points by a credit bureau.
- Don’t expect to get approved – Being on Centrelink makes your loan application a bit more complicated compared to those who are not beneficiaries of the program. Don’t expect that you will be automatically approved, even if you apply for a Centrelink loan.
- Don’t forget about your budget – Adding a loan could hurt your budget. Consider the monthly repayments you need to make, especially if you have no other income source.
What Are Your Other Options?
Receiving Centrelink payments does limit the number of options you have in getting a loan. However, you do have a few choices, including a short-term loan.
Keep in mind that whilst all loans come with interest rates and other fees, a small, short-term loan can be a little bit more expensive. They target people who require funds quickly but have a bad credit history. So, if you belong to this category, a short-term loan may just be what you need. Once again, be warned of the fees, as they can be quite hefty. If you do not pay on time, you could end up with more debt than you can handle.
If you are set to getting a personal loan, here are some alternatives to check if you qualify:
- Get a Centrelink Advance Payment – It’s typically easy to get a Centrelink advance. All beneficiaries can apply for an advanced payment. The main requirement is that you should be on Centrelink for at least three months to be eligible. It’s also crucial that you do not owe any money to the Australian government. You can speak to a Centrelink representative to know the amount you can qualify for. This amount will generally be based on the benefits you currently receive, as well as your personal situation.
- Contact Your Bank for Overdraft Access – Many banks have an overdraft facility, which you can take advantage of. Suppose you have a good relationship with your bank. In that case, you may be eligible to use credit in case of an emergency. It is a bank loan, which means you will be charged with interest, along with other fees. Additionally, the interest rate is often high, so it’s best to do some calculations first before you apply.
- Learn about the No Interest Loan Scheme Initiative – Have you heard about the No Interest Loan Scheme or NILS? It’s a program created by an organisation called Good Shepherd Microfinance, whose aim is to help low-income Australians. If you qualify, you can receive $300 to $1200. Although it is a small amount and may be less than you need, the repayments are pretty affordable. The most important feature of the loan is that it does not come with interest. However, it is not easy to get approved. You have to provide evidence that the money you receive will be used for essentials. That means only medical procedures, school supplies purchases, appliance replacements, and similar activities are covered. If you plan to use the funds to travel or buy a car for leisure, seek somewhere else. Aside from guaranteeing the purpose of the loan, here are other requirements to know about:
- All applicants should have a health care or pension card.
- It’s also required to be a resident in the current address for at least three months.
- All persons applying for a NILS loan should be willing to repay the loan over the agreed period.
Are You Seeking More Funds to Pay for a Utility Bill?
Here’s good news for you. If you receive Centrelink payments and are searching for a loan to help you pay your utility bill, don’t. There is actually a better and more manageable way. The law states that utility providers should provide an alternative payment plan for consumers facing hardship. Instead of getting a loan, which you could find difficult to repay, you may want to sort out a plan with your utility provider. Doing so will help you avoid a high-interest loan and have more leeway to fix your current financial challenge.