Having a personal loan does not automatically stop you from getting a home loan.
However, your existing debt can reduce how much you can borrow.
If you are buying a house, lenders will assess your personal loan alongside your income, expenses, deposit and other debts.
This guide explains how personal loans affect borrowing capacity, serviceability, credit checks, pre-approval and mortgage approval.
Key takeaways
| Key point | What it means for you |
| A personal loan does not automatically prevent approval | You may still qualify if your overall finances support the mortgage. |
| Personal loan repayments affect borrowing capacity | Existing repayments reduce the income available for a new mortgage. |
| The remaining balance matters | Lenders consider the debt alongside its repayment and remaining term. |
| Your income and expenses matter | Higher income and lower expenses can improve your borrowing position. |
| Your credit history matters | Missed payments, defaults and multiple applications can create problems. |
| Paying off the loan may help | Removing the repayment can improve serviceability. |
| Paying off debt can reduce your deposit | You need to balance debt reduction against your upfront purchasing costs. |
| Lender policies differ | Different lenders may assess the same application differently. |
| APRA’s 3% buffer applies | APRA confirmed the mortgage serviceability buffer remains at three percentage points. |
| Compare your options before applying | A strategic application can help you avoid unsuitable credit applications. |
Can I Get A Home Loan If I Have A Personal Loan?
Yes, you can get a home loan if you have a personal loan.
Having existing personal debt is common among Australian borrowers.
The key issue is whether you can afford the proposed mortgage alongside your existing commitments.
Lenders assess your income, expenses, debts and broader financial circumstances.
They must also follow responsible lending obligations when assessing your application. (
Therefore, a personal loan is not an automatic rejection.
Instead, it becomes one part of your overall financial assessment.
How Does A Personal Loan Affect Your Home Loan Application?
The main impact usually comes through borrowing capacity.
Your personal loan creates an ongoing repayment commitment.
That repayment reduces the income available to service a new mortgage.
Lenders may also consider your outstanding balance and remaining loan term.
For example, a personal loan with a $700 monthly repayment uses $700 of income that could otherwise support your mortgage.
The exact impact depends on your income, expenses, loan balance, repayment, remaining term and lender policy.
What lenders consider
Your personal loan is only one part of the assessment.
Lenders may consider:
- Income: Your assessable income helps determine your repayment capacity.
- Living expenses: Household spending affects your available surplus income.
- Existing debts: Personal loans and other debts create ongoing commitments.
- Credit facilities: Credit card limits can affect your borrowing position.
- Dependants: Dependants can increase the expenses used during assessment.
- Credit history: Your repayment behaviour helps lenders assess your credit profile.
- Deposit: Your available savings affect your purchase price and loan structure.
ASIC requires credit providers to make reasonable inquiries and take reasonable steps to verify your financial situation.)
What is borrowing capacity?
Your borrowing capacity is the approximate amount a lender may allow you to borrow.
It is not simply a percentage of your salary.
Lenders assess your income against living expenses, existing debts and the proposed mortgage repayment.
A simplified assessment looks like this:
Assessable income − living expenses − existing commitments − assessed mortgage repayment = remaining capacity
This is only a simplified explanation.
Each lender uses its own assessment methodology.
Therefore, two lenders can reach different results using the same financial information.
Why APRA’s 3% serviceability buffer matters
APRA requires authorised deposit-taking institutions to apply a minimum mortgage serviceability buffer.
The buffer is currently three percentage points above the loan’s interest rate.
This means lenders do not simply assess whether you can afford today’s mortgage repayment.
They also assess whether you could continue making repayments if conditions became harder.
Your personal loan already uses part of your available income.
The proposed mortgage is then assessed using the lender’s serviceability methodology.
This combination can reduce your maximum borrowing amount.
Does The Personal Loan Balance Or Repayment Matter More?
Both can matter, but the repayment is particularly important for serviceability.
Your repayment represents an ongoing claim on your income.
The outstanding balance also provides information about the size and duration of your debt.
A nearly completed personal loan may be treated differently from a newly established loan.
However, you should not assume a small remaining balance will automatically be ignored.
Your lender will assess the debt under its own lending policy.
Can I Get A Home Loan With A $10,000, $20,000 Or $30,000 Personal Loan?
Yes, potentially.
The size of your personal loan does not automatically determine whether you qualify.
Instead, lenders consider the repayment alongside your income, expenses and other financial commitments.
| Personal loan balance | Potential impact |
| $10,000 | May have a manageable impact, depending on the repayment and your overall finances. |
| $20,000 | May have a more noticeable effect on borrowing capacity. |
| $30,000 | Can create a larger ongoing commitment and may reduce borrowing capacity further. |
For example, someone earning $150,000 may have a very different outcome from someone earning $60,000.
Your other debts, household expenses and loan term can also change the result.
Therefore, the balance alone does not determine whether you qualify.
Should I Pay Off My Personal Loan Before Applying?
Paying off your personal loan can improve your borrowing position.
It can remove an ongoing repayment from your financial commitments.
However, you should not automatically use your entire deposit to clear the debt.
Your available savings may also need to cover:
- Deposit
- Stamp duty
- Conveyancing
- Building or pest inspections
- Moving costs
- Emergency savings
This creates an important trade-off.
Paying off the personal loan may improve serviceability.
However, using your savings to clear the debt could reduce your deposit.
When paying off the personal loan may help
Clearing the loan may make sense when its repayment significantly reduces your borrowing capacity.
It may also help if you have enough savings left for your deposit and purchasing costs.
When you may want to keep the personal loan
You may not want to use a large portion of your deposit to clear the debt.
For example, suppose you have $100,000 saved and owe $20,000 on your personal loan.
Paying off the loan would leave $80,000 for your deposit and purchasing costs.
That could affect the property price you can afford.
The best decision depends on how each option affects your serviceability, deposit and overall financial position.
Can I Consolidate My Personal Loan Into My Home Loan?
Debt consolidation may be possible in some circumstances.
However, you should consider the long-term cost.
A personal loan may have a shorter repayment period than a mortgage.
Rolling the debt into a mortgage could reduce your regular repayment.
However, you could pay interest on that debt for much longer.
You should therefore compare the total cost rather than focusing only on the monthly repayment.
Can I Use A Personal Loan For My Home Deposit?
Using borrowed money for a deposit can complicate your mortgage application.
A personal loan creates another repayment commitment.
That can reduce your borrowing capacity.
It can also affect your overall lending structure.
You should disclose the source of your deposit honestly.
What happens if my personal loan is nearly paid off?
A nearly completed personal loan may put you in a stronger position to get your home loan approved.
However, you should not assume the lender will ignore the remaining debt.
Ask the lender how it treats a loan with only a few repayments remaining.
If you pay the loan out before applying, keep documentation confirming the payout.
You should also check that the loan has been properly closed.
There is no universal waiting period after paying off a personal loan.
The important issue is whether the debt has been discharged and can be verified.
What if I have a personal loan and credit card debt?
Multiple debts can compound their effect.
A lender considers your overall financial commitments.
Credit card limits can also matter even when you do not owe the full limit.
Reducing unnecessary credit facilities may therefore strengthen your application.
However, closing accounts should form part of a broader financial strategy.
Read more: Can I get a home loan if I have bad credit?
What If I Have A Personal Loan And Hecs-Help Debt?
Having a personal loan and HELP debt does not automatically prevent mortgage approval.
However, both commitments can affect your overall financial assessment.
HELP repayment obligations can depend on your income.
Your personal loan has a separate contractual repayment.
Therefore, the two debts can affect your financial position differently.
You should disclose both debts during the application process.
Read more: Can I get a home loan with student loans
What Documents Will I Need To Apply For A Home Loan?
Your lender may request documents showing your income, debts and financial position.
Common documents include:
- Payslips: To verify your current employment income.
- Bank statements: To demonstrate spending and existing commitments.
- Personal loan statement: To confirm the balance, repayment and loan details.
- Credit information: To assess your borrowing history.
- Identification: To verify your identity.
- Savings evidence: To demonstrate your deposit and available funds.
The exact requirements vary between lenders.
Providing accurate information early can help reduce delays.
Does the age of your personal loan matter?
It can.
A newly established personal loan may indicate that you recently increased your debt.
A long-standing loan with consistent repayments can show a different borrowing pattern.
However, no single factor determines approval.
The lender assesses your complete financial position.
Does The Personal Loan Interest Rate Affect My Mortgage Application?
The interest rate affects the personal loan’s contractual repayment.
That repayment can then affect your broader serviceability position.
However, lenders do not all assess debts in exactly the same way.
Your loan term also matters.
A high repayment over a short period can affect serviceability differently from a lower repayment over a longer period.
Therefore, looking only at the interest rate gives you an incomplete picture.
Personal Loan Versus Other Debts
Different debts can affect your mortgage assessment in different ways.
| Debt type | Potential mortgage impact |
| Personal loan | Regular repayments can reduce borrowing capacity. |
| Credit card | The credit limit can affect assessment even when the balance is low. |
| Car loan | Regular repayments reduce available income. |
| HECS-HELP | Repayment obligations can affect your overall financial assessment. |
| Buy now, pay later | Existing commitments may be considered under lender policies. |
The important point is that lenders consider your broader financial commitments.
You should not focus on only one debt.
What If Your Application Is Declined?
A declined application does not necessarily mean you cannot get a mortgage.
Another lender may assess your circumstances differently.
However, you should understand why the application failed before applying elsewhere.
Possible reasons include:
- Insufficient serviceability
- High existing commitments
- High household expenses
- Credit history issues
- Insufficient deposit
- Unstable or unsuitable income
Do not respond to a rejection by immediately submitting several new applications.
First understand the underlying problem.
Read more: What to do if your home loan is declined
Can A Mortgage Broker Help If You Have A Personal Loan?
A mortgage broker can compare lending options based on your circumstances.
This can be useful because lenders do not all use identical credit policies.
A broker may help identify lenders that are more suitable for your financial position.
However, a broker cannot guarantee approval.
The lender still makes the final credit decision.
You should also understand how the broker is paid and which lenders they can access.
Conclusion
A personal loan does not automatically close the door to home ownership.
However, it can reduce your borrowing capacity because the repayment consumes part of your available income.
The strongest approach is to consider your entire financial position.
That includes your income, expenses, debts, deposit and credit history.
If paying off your personal loan is possible, compare the benefit against the deposit you would lose.
Most importantly, do not assume one lender’s assessment represents every lender’s decision.
Different lending policies can produce different outcomes.
For borrowers across Australia, understanding these differences can help you approach the mortgage process with realistic expectations.
Frequently asked questions
1. Can I get a home loan if I have a personal loan?
Yes.
Your lender will assess your income, expenses, debt repayments and credit history.
A personal loan may reduce your borrowing capacity, but it does not automatically prevent approval.
2. Should I pay off my personal loan before applying?
Paying it off can improve borrowing capacity by removing the existing repayment.
However, using your savings to clear the debt could reduce your deposit.
Compare both outcomes before making the decision.
3. Does a personal loan affect borrowing capacity?
Yes.
The repayment is an ongoing financial commitment.
Therefore, it can reduce the income available to service a mortgage.
4. Can I get a mortgage with a $30,000 personal loan?
Yes, potentially.
The lender will consider the debt alongside your income, expenses and other commitments.
The loan may reduce the amount you can borrow.
5. Can I use a personal loan for a house deposit?
It can complicate your mortgage application.
The additional repayment can reduce borrowing capacity.
You should disclose the source of your deposit to your lender.
6. Does paying off a personal loan improve my credit score?
Paying the loan as agreed demonstrates responsible credit behaviour.
However, your credit profile contains broader information.
Paying off one loan does not guarantee a particular credit score.
7. Can I get pre-approval while I have a personal loan?
Yes.
The lender will include the personal loan in its financial assessment.
Your pre-approved amount may therefore be lower.
8. How long should I wait after paying off my personal loan?
There is no universal waiting period.
The important issue is confirming that the debt has been fully discharged.
Keep your payout documentation and ensure the updated position can be verified.
Financial disclaimer: This article provides general information only and does not constitute personal financial advice. Lending criteria, credit policies and individual circumstances vary between lenders. Consider obtaining professional advice before making financial decisions.
