A little respect: How you can use your debt to improve your loan approval prospects

In fact, you’d be hard-pressed to find one who doesn’t, so it always pays to respect your existing debt.

When assessing your loan application, a lender will closely examine how you treat your current and/or previous lines of credit.

Are your existing loans being paid on time? Are your direct debits going through?  

If you have a track record of making your repayments in full and on time, then this will help your chances of being approved for a loan. And it will help boost your credit score, a critical number in determining lenders and loan terms.

However, if you consistently have issues with paying back debts such as credit cards, home loans, personal loans and Buy Now, Pay Later (BNPL) services, then that will be a red flag to lenders even when you can comfortably service the loan.

So, how do you show lenders that you respect your debt? Here are some ways that you can use your current debt to improve your future loan approval prospects:

• Pay on time: Lenders want to see that you make your repayments on time. If you have another loan, credit card, or a BNPL account, then make a concerted effort to ensure the lender receives your repayments by the due date. Apart from hurting your chances of future loan approvals, missing a payment can also see you get stung with late fees. Ouch!
• Set-up automated repayments: A great way to help ensure you don’t miss a loan, credit card, or bill payment is to set up direct debits. Life can get busy, so automating your repayments eliminates the real risk of you forgetting to pay on time and receiving reminders about missed payments. Missing a payment or, worse, defaulting on a repayment raises red flags for lenders and can result in a default being recorded on your credit report.
• Ensure your direct debits go through: Once you’ve set up automated repayments, you need to ensure they will actually go through. This means having enough money in your account around the time the payment is due to be direct debited.
• Use your everyday bank account: When making repayments for lines of credit, it’s best to use your everyday bank account. After all, paying your debts with a credit card is just swapping one debt for another, which isn’t something that lenders look favourably upon.
• Pay extra when you can: Apart from reducing your outstanding balance, making extra repayments shows lenders you can prioritise your debts. However, some lenders charge fees for making additional repayments or early payout fees, so it's worth checking whether either of these applies.

Exhibiting good money management skills and financial discipline to pay off your debts is crucial to get the best possible loan for your needs.

Lenders like Jacaranda Finance understand the limitations of relying solely on credit scores when assessing loan applications. That’s why we take a holistic view of financial habits to determine loan eligibility. Every repayment matters!

Again, it's all about respect when it comes to loan applications. If lenders can see you respect your debts, then they are more likely to let you take on more.

Keen to know more about what lenders are looking for? Check out our article outlining 10 tips to boost your chances of loan approval, or our blog about whether your spending habits affect your ability to get a loan.