Choose the right loan purpose

This page discloses:

  • Why some borrower can get faster application result and higher approval amount.
  • A loan has multipurpose (more than one purpose) secrets.

This passage only shows some of the advantages and disadvantages from the ???fastest??? and ???easiest??? perspective.

Generally there are only two types of loans in the finance market.

Loans for Business Purposes:
It has the advantages of the following:

  • Faster assessment time, usually?? with higher approval amount
  • Flexible repayment
  • Credit rating is not the major issue
  • May less personal income proof
  • Flexible exit/ repayment strategy

Loan features:
This loan is for business starters and/or existing business owners and is mainly based on asset lending.

More than half (e.g. over 51% - wholly or predominantly) of the loan amount is required to be intended for business and commercial investment purposes for these types of loans. Before you apply for these loans, the applicants are required to clearly show genuine intention for business purpose to the Credit Provider.

Two income streams:
Self employed owners, company directors, cash income earners, business starter and those who are desirous for financial freedom are welcomed by the Credit Provider. Those who are employees (PAYG) and at the same time running a small business are welcome by some of the lenders, as they have?? two income streams to service the loan; wages/salary plus business income.

Those who are Centrelink earners, or those who for any reason do not wish to be a Centrelink earner, or those who are afraid of the government may not have the affordability to support reasonable social security protection in the future or those who would like to start being financial independent; might wish to run a micro or small business at home or at their leisure time for financial freedom in the future.

Loans for Consumer Purpose:
One of advantages of this loan is that it is very straight forward, but with limited flexibility.

Loan feature:
More than half (e.g. over 51% - wholly or predominantly) of the loan amount is for personal, domestic, household use; usually these purposes are referring to ???expenses??? such as grocery, holiday and wedding where money cannot be generated to repay the loan.

One income stream:
This loan may be suitable for PAYG or Centrelink earners who receive regularly income and who have solid income proof but are not currently operating or have no intention to operate a business. The approval criteria are mainly base on disposal income and clean credit.

You need to provide a detail income and expense statement to prove that you can repay the loan without hardship; this is due to responsible lending requirement imposed by law for consumer loans. You may also need to disclose all of your current personal liabilities and full details of employment and all income information.

Please note that self-employed owners and company directors??? pay slip may not be accepted as a ???genuine??? PAYG???s income proof; they may be required to provide two years financial statements.

Why does loan purpose matter?

Loan purpose

Suitable*

Advantages

Disadvantages

1

Business
Above 51% of the loan amount intended to be used for business purposes

Employee
Centrelink
Self employed
Company director
Cash income

  • Less income and expenses proof
  • Bad Credit consider
  • Higher amount
  • Faster approval

Above 51% of the loan amount intended to be used for business purposes

2

Personal
Above 51% of the loan amount intended to be used for personal purpose

Employee
Centrelink

Straight forward

  • Bad credit may not consider
  • Lower loan amount
  • Income & expense proof required

This table only shows some of the advantages and disadvantages from a ???fastest??? and ???easiest??? perspective. *Information above is based on general situations.

Conclusion

If you are applying a loan with more than one loan purpose (multipurpose), should you want to get higher approval amount with faster result, then you may consider the business purpose loan first.

You may need to carefully analyse the type of loan that is suitable for your situation before applying for one. Your loan approval condition, assessment time and approval amount may vary and is subject to your loan purpose and your personal circumstances.

If for any reason you have applied for a wrong type of loan, previous application need to be cancelled and you are required to re-apply for the loan again.