Lending criteria and you: how your job affects a loan

Whether you’re in the market for a new vehicle, need to pay for your wedding or are planning on purchasing property, it’s important to note that your job plays a significant role in your chances of being approved for a loan. 

This is because every lender has a strict set of lending criteria they need applicants to meet before they can provide them with a loan. This is for your benefit, as well as the protection of the lender, as you would not want to take on a loan that you could not responsibly pay back and risk falling into serious debt or bankruptcy.

What is lending criteria and how does it apply to you?

Lending criteria is essentially a set of boxes borrowers will need to tick to qualify for a credit product. Loan lenders are monitored by a few regulatory bodies, including ASIC and the ACCC, to ensure that lenders are operating in good faith and to protect the financial safety of customers. 

Lending criteria specifics may differ across each loan lender or credit card issuer, but it typically includes:

• Being 18 years or older
• Being an Australian citizen or permanent resident (some exceptions depending on borrower’s visa)
• Meeting an annual income minimum
• Having a good to excellent credit score (some exceptions depending on lender 

For example, you will not find a lender willing to give a home loan to an individual applicant under 18. Nor will you find a lender willing to provide a loan far outside of what your income can afford. Lending criteria exists to make sure a home loan lender is not lending money to customers who cannot afford to make repayments 

Anything that can put the borrower and lender into a risky financial situation must be controlled carefully.

How your job affects your loan application

When it comes to applying for a loan, your job is a key deciding factor in terms of assessing your eligibility. Many lenders will have a minimum income requirement the borrower needs to meet to be approved for a loan.

But there are a variety of ways you can earn income that could be put towards a loan. This is where the type of job you have, and length of employment, may contribute to your chances of approval

Lenders look more favourably on borrowers who can showcase a high level of stability in their finances, and your job is no exception. Being employed full time for a considerable amount of time may look better on an application as you’ve established a history of consistent earnings and have passed the probation period.

This means that in terms of your job, the following will factor into your chances of loan approval:

• Your employment type (casual, part-time, full-time, self-employed)
• Length of employment (still in probation period, over 6 months, over 12 months etc.)
• Income earned per annum or financial yea

You are still able to get approved for a loan if you’re casually or part-time employed, depending on your income and length of time employed. If you can prove you can reasonably service the loan based on your income and employment documentation, such as payslips, bank statements and tax returns, you may be approved.

If you’re a sole trader or small business owner, you will understandably have less documentation proving your regular earnings than someone employed full-time at a set annual income. This is where low-doc, or alt-doc, loans may come in handy.

Short for low documentation loans, this type of loan has less rigid lending criteria around your job and income than what is expected for someone who is not self-employed. A lender may instead request you provide your ABN as well as your tax returns to help establish your income and potential borrowing power.

Before you apply for any loan, you may want to consider ensuring your job will not hinder your chances of approval. This may mean that if you’ve recently started a new role but are still in your probation period, you may want to consider holding off on applying for a loan until you’ve passed this phase. Or if you’re a small business owner, you may want to consider a low-doc loan instead of a traditional loan application, to help boost your chances of approval.

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