What Is a Loan Suitability Assessment?

Have you been asked to provide bank statements, income details or information about your expenses during a loan application?

These questions form part of the lender’s assessment of your circumstances. Although people commonly call this a loan suitability assessment, Australian credit law generally describes the process as assessing whether a credit contract is unsuitable or not unsuitable for the applicant.

A loan suitability assessment helps a lender determine whether a proposed loan meets your stated needs and whether you are likely to be able to meet the repayments without substantial financial hardship.

It is an important part of responsible lending, but it does not guarantee that your application will be approved.

What Does a Loan Suitability Assessment Mean?

A loan suitability assessment is the process a lender uses to consider whether a particular credit contract meets your stated requirements and is unlikely to cause substantial hardship.

Under Australia’s responsible lending obligations, a credit licensee must not enter into, recommend or assist with a credit contract that is unsuitable for the consumer.

The process generally involves:

• Asking about your requirements and objectives.
• Asking about your financial situation.
• Taking reasonable steps to verify your financial information.
• Assessing whether the proposed credit contract is unsuitable.

A credit assistance provider, such as certain brokers, will generally make a preliminary assessment. The credit provider that would issue the loan makes the final assessment.

The legal wording is important. A finding that a loan is not unsuitable does not necessarily mean it is the cheapest product available, the best product on the market or free from financial risk.

It means the lender’s assessment did not identify the proposed contract as unsuitable under the applicable requirements.

Why Do Lenders Conduct Suitability Assessments?

Suitability assessments are intended to reduce the risk of you entering a credit contract that you cannot reasonably manage or that does not meet your stated needs.

Under the National Consumer Credit Protection Act 2009, a lender must make reasonable inquiries about your financial situation, requirements and objectives, and take reasonable steps to verify your financial information before completing its assessment.

A contract must be assessed as unsuitable when it is likely that:

• You would be unable to meet your financial obligations under the contract.
• You could only meet those obligations with substantial hardship.
• The contract would not meet your requirements or objectives.

A lender can also determine that a contract is unsuitable for other relevant reasons.

What Information May a Lender Assess?

The information requested can depend on the lender, the credit product and your individual circumstances.

A loan application assessment may consider the following areas.

Your Income

A lender may ask how much you earn, how regularly you receive income and where that income comes from.

Your income may need to be visible through documents such as bank statements or other reliable records. A lender may also consider whether your income is likely to continue during the proposed loan term.

Your Regular Expenses

Your income alone does not show whether repayments are affordable.

A lender may consider regular living costs such as:

• Housing.
• Food.
• Transport.
• Utilities.
• Insurance.
• Other household commitments.

The aim is to understand how much money you reasonably have available after necessary expenses.

Your Existing Debts and Repayments

Current credit cards, personal loans, buy now, pay later commitments and other debts can affect how much room you have in your budget.

A lender may consider both the balances you owe and the repayments you are already required to make.

Your Recent Financial Activity

Bank statements or transaction information can help verify the income and expenses included in your application.

They may also show:

• Existing loan repayments.
• Overdrawn accounts.
• Dishonoured payments.
• Other financial commitments that could affect your capacity to take on another repayment.

The Amount and Purpose of the Loan

A lender needs to understand what you want the loan for and whether the proposed amount, term and product features are consistent with that purpose.

For example, borrowing for a defined, one-off car repair raises different considerations from repeatedly borrowing to cover ordinary weekly expenses.

Your Requirements and Objectives

Affordability is only one part of a suitability assessment. A loan also needs to align with what you are trying to achieve.

You may be asked:

• How much do you need?
• What will you use the money for?
• How quickly do you intend to repay it?
• Are particular repayment arrangements important to you?
• Is the expense a one-off cost or part of an ongoing budget problem?

Providing complete and accurate information helps a lender assess your application based on your actual circumstances.

Loan Suitability Versus Loan Eligibility

Loan suitability and eligibility are related, but they are not the same thing.

You could meet a lender’s minimum eligibility requirements and still have your application declined after an individual assessment.

For example, meeting a minimum income requirement does not automatically show that a particular repayment will be affordable. Your rent, living expenses, existing debts and other financial commitments also matter.

For our loans, you can review our current eligibility requirements before deciding whether to submit an application.

Our published criteria include:

• Being at least 18 years old.
• Having at least $750 per week or $1,500 per fortnight in take-home income.
• Having income visible on your bank statements.
• Being able to manage the repayments without further financial difficulty.
• Having income that does not consist only of government benefits.

Meeting our eligibility criteria does not guarantee approval.

Does a Suitability Assessment Guarantee Loan Approval?

No. Completing a loan suitability assessment does not guarantee that a lender will approve your application.

A lender may have additional eligibility requirements, lending policies and verification processes. It may also need more information before making a decision.

An application could be declined because:

• The repayments appear unaffordable.
• The requested amount does not match your circumstances.
• The loan does not meet your stated needs.
• Your income or other information cannot be adequately verified.
• Existing debts leave insufficient room in your budget.
• You do not meet the lender’s eligibility criteria.

Moneysmart notes that lenders consider factors such as your income, bills and existing commitments and may decline an application when their assessment indicates that repayments could cause hardship.

What Can You Do Before a Loan Assessment?

There are some practical steps you can take before applying to better understand your position and provide accurate information.

Review Your Budget

List your take-home income and essential expenses.

Remember to include less frequent costs such as car registration, insurance, medical expenses and school costs rather than focusing only on your weekly bills.

Consider whether the proposed repayments would leave you with enough money for essential living costs and unexpected changes.

Check How Much the Loan Will Cost

Look beyond the amount you receive.

Before borrowing, review:

• The interest rate.
• The establishment fee.
• Possible default fees.
• The repayment amount.
• The repayment frequency.
• The total amount repayable.

We publish our current loan costs and fees so that you can review them before deciding whether one of our loans may be appropriate for your circumstances.

Gather Accurate Documents

Have your identification, income information and bank account details available.

Make sure the information you provide is current, complete and truthful.

You should never hide debts, alter bank statements or leave out regular expenses in an attempt to influence an assessment.

Borrow Only What You Need

A larger loan generally creates a larger repayment obligation.

Consider the amount you actually require for the specific expense rather than automatically applying for the maximum amount available.

Consider Alternatives

Before borrowing, it may be worth considering whether you could:

• Use available savings.
• Delay the expense.
• Ask the service provider for a payment plan.
• Request hardship assistance.
• Adjust your household budget.
• Compare other suitable credit options.

Borrowing should not be treated as a substitute for regular income or as an ongoing way to pay ordinary household expenses.

A Simple Loan Suitability Assessment Example

Consider this fictional example.

Alex needs to pay for an unexpected car repair so that they can continue travelling to work. Alex applies for a personal loan and provides details of their income, rent, living costs, existing debts and the repair invoice.

The lender considers whether:

• The requested amount is consistent with the repair cost.
• Alex’s income is reliable and verifiable.
• Existing expenses and debts leave enough money for repayments.
• The repayments could be made without substantial hardship.
• The loan term and structure meet Alex’s stated needs.

Even if Alex meets the lender’s basic eligibility requirements, the lender must still assess the individual application.

The outcome cannot be assumed in advance.

How We Assess Applications at Sunshine Loans

We are an Australian credit provider offering unsecured Medium Amount Credit Contracts.

You can complete our application process online, but every application remains subject to individual eligibility, verification, responsible lending assessment and approval.

When assessing an application, we may consider information such as your income, bank statements, expenses and ability to afford the proposed repayments.

Our assessment is intended to determine whether the proposed loan would be unsuitable in your circumstances.

Our Credit Guide also explains that we must make reasonable inquiries, verify financial information and not provide unsuitable credit.

Our current product features include:

Our loans involve interest, fees and repayment obligations.

They are intended as a potential short-term option for eligible customers facing a specific expense, not as a long-term financial strategy or an ongoing way to fund ordinary living costs.

You can also read our frequently asked questions or learn more about credit ratings and credit scores before deciding whether borrowing is appropriate for you.

Can You Request a Copy of the Assessment?

In many circumstances, you can ask for a written copy of a credit provider’s assessment free of charge.

For a final assessment completed by a credit provider:

• If you request it before entering the contract, it must be provided before the contract is entered into.
• If you request it within two years after entering the contract, it generally must be provided within seven business days.
• If you request it more than two years but within seven years after entering the contract, it generally must be provided within 21 business days.

A credit provider is generally not required to supply the assessment if the credit contract was never entered into.

Different provisions apply to preliminary assessments prepared by credit assistance providers.

Frequently Asked Questions

Is a Loan Suitability Assessment the Same as a Credit Check?

No.

A suitability assessment considers whether a particular credit contract meets your requirements and is unlikely to cause substantial hardship.

A credit check involves accessing information from a credit reporting body.

Depending on the lender and product, a broader loan assessment may involve your financial information, bank statements, current debts, expenses and credit history.

Will a Lender Look at My Bank Statements?

A lender may use your bank statements or transaction information to verify your income, expenses and existing financial commitments.

The documents required will depend on the lender, product and your circumstances.

For our applications, your income needs to be visible on your bank statements as part of our published eligibility requirements.

Can I Be Approved if I Meet All Eligibility Requirements?

Meeting eligibility requirements does not guarantee approval.

Your financial circumstances, repayment affordability, verification results and the proposed loan’s suitability still need to be assessed.

We assess every application individually.

What Happens if a Lender Considers the Loan Unsuitable?

A lender must not enter into the credit contract if it is unsuitable for you.

Depending on your circumstances, you might consider whether a smaller amount would be appropriate, explore other alternatives or look at ways to address the expense without taking on additional credit.

Should I Apply to Several Lenders After Being Declined?

Submitting multiple credit applications within a short period may result in several enquiries appearing on your credit report when credit checks are conducted.

It may be more useful to understand why your application was unsuccessful, check that your financial information is correct and reconsider whether taking on additional credit is appropriate.

Moneysmart recommends asking the lender why an application was unsuccessful and reviewing your credit report for incorrect information.

Where Can I Get Help if I Cannot Afford Essential Expenses?

If you are struggling to afford essential expenses, consider speaking with the relevant service provider about a payment plan or hardship assistance before taking on more debt.

Free financial counselling is available through the National Debt Helpline on 1800 007 007. Moneysmart also provides information about emergency assistance with food, housing and bills.

Understand the Assessment Before Applying

A loan suitability assessment is more than a check of whether you meet basic application criteria.

It considers your needs, financial circumstances and likely ability to manage the repayments without substantial hardship.

Before you apply for credit, review your budget, confirm how much you actually need and understand the interest, fees and repayment terms.

You can review our eligibility requirements and current loan costs to understand whether our product may be appropriate for your circumstances.

Applications remain subject to assessment and approval. If you have questions about an existing application, repayment difficulty or account support, you can contact our Customer Support team.

The information provided in this blog is for general informational purposes only and does not constitute financial advice. It is not tailored to the specific circumstances of any individual. Before acting on the information, you should consider whether it is appropriate for you, having regard to your objectives, financial situation and needs.