Loan with Debt? Here's How to Get Approved (2026)

Are you feeling overwhelmed by debt and wondering if it's still possible to secure a loan? You're not alone. Many Australians find themselves juggling existing financial commitments while trying to achieve important life goals, such as buying a home or financing a new business venture. The good news is that obtaining a loan with existing debt is possible, though it requires a strategic approach and understanding of current lending landscapes.

Understanding Loans with Existing Debt

When it comes to acquiring a loan while carrying debt, lenders will closely evaluate your financial situation to determine your creditworthiness. This involves assessing your income, expenses, credit history, and the nature of your existing debts. Lenders need to ensure that you're capable of managing additional financial obligations without overextending yourself.

Debt-to-income ratio (DTI) is a critical factor in this evaluation. This ratio measures your total monthly debt payments against your gross monthly income. Generally, lenders prefer a DTI of 40% or lower, although some may consider higher ratios depending on other factors like income stability and credit score.

Loan Options and Current Market Information

In 2026, the Australian lending market offers a variety of loan options for individuals with existing debt. Interest rates are influenced by factors such as the Reserve Bank of Australia's cash rate, economic conditions, and individual credit profiles. As of now, personal loan interest rates typically range from 6.49% to 12% for those with good credit scores.

Here are some common loan options available:

Each loan type comes with its own eligibility criteria and benefits. For instance, debt consolidation loans are specifically designed to combine multiple debts into a single payment, potentially lowering the overall interest rate and simplifying your finances.

Steps to Secure a Loan with Existing Debt

Securing a loan while managing existing debt requires careful planning and execution. Here’s a step-by-step guide to help you through the process:

1. Evaluate Your Financial Situation: Start by calculating your DTI and reviewing your credit report to understand your financial standing.
2. Research Loan Options: Identify the types of loans you qualify for based on your credit score and financial situation. Consider reaching out to a mortgage broker like Esteb and Co, who have access to 83+ lenders and can help tailor solutions to your needs.
3. Improve Your Credit Score: If possible, pay down small debts, settle any overdue accounts, and ensure your bills are paid on time to boost your credit score.
4. Prepare Documentation: Gather necessary documents such as proof of income, employment history, and details of existing debts.
5. Apply for the Loan: Submit your application to a lender or through a mortgage broker. Be transparent about your debts and financial commitments.
6. Negotiate Terms: Once approved, review the loan terms carefully. Don’t hesitate to negotiate interest rates or repayment terms to ensure they align with your financial capacity.
7. Create a Repayment Plan: Develop a realistic repayment plan that incorporates your new loan obligations alongside existing debts.

Expert Tips and Considerations

Here are some expert tips to consider when applying for a loan with existing debt:

• Utilise Professional Advice: Consulting with a financial advisor or mortgage broker can provide personalised guidance and increase your chances of approval.
• Consider Debt Consolidation: If managing multiple debts is overwhelming, a debt consolidation loan can simplify repayments and potentially lower interest rates.
• Be Realistic: Only borrow what you can afford to repay. Over-borrowing can lead to financial strain and impact your credit score.
• Monitor Interest Rates: Keep an eye on interest rate trends, as they can affect your repayments. Lock in a fixed rate if you prefer stability.
• Stay Informed: Be aware of fees and charges associated with loans, such as application fees, early repayment fees, and ongoing charges.

Frequently Asked Questions

• Can I get a loan with bad credit? Yes, it's possible, but your options may be limited to higher interest rates or secured loans.
• What is the maximum DTI ratio allowed by lenders? While typically 40% is the preferred maximum, some lenders may allow up to 50% depending on other factors.
• How does a debt consolidation loan work? It combines multiple debts into a single loan, often with a lower interest rate, making repayments more manageable.
• Can mortgage brokers help if I have existing debt? Absolutely, mortgage brokers like Esteb and Co can help find suitable lenders and negotiate better terms.
• What documents are needed for a loan application? Commonly required documents include proof of income, identification, credit report, and details of existing debts.
• Are there loans specifically for consolidating debt? Yes, debt consolidation loans are designed to simplify multiple debts into one payment.
• Is refinancing an option? Refinancing can be a viable option to lower interest rates or alter loan terms, depending on your financial goals and creditworthiness.