Do Loans Count as Income? Uncover the Truth (2026)

Are you contemplating taking out a loan and wondering how it might affect your financial profile? Perhaps you're curious about whether loans count as income, especially when managing your taxes or assessing your borrowing capacity. Understanding this can have significant implications on your financial decisions, so let's delve into this topic to clear up any confusion.

Understanding Loans and Income

At its core, a loan is a sum of money borrowed from a lender with the agreement to repay it over a specified period, usually with interest. Unlike income, which is money earned from employment, investments, or other revenue-generating activities, a loan is not considered income because it is not earned—it is borrowed. This distinction is crucial when assessing your financial situation or planning for tax obligations.

In Australia, income is what you report on your tax returns, and it typically includes wages, dividends, rental income, and other revenue streams. Loans, however, do not fit this category since they must be repaid and do not increase your net worth. Instead, they are liabilities that temporarily boost your cash flow.

Current Loan Rates and Requirements in 2026

As of 2026, the Australian financial market is experiencing varied interest rates depending on the type of loan and the borrower's credit profile. Here’s a snapshot of the current landscape:

Loan Type	Interest Rate Range	Typical Requirements
Personal Loans	6.49% - 12%	Good credit score, proof of income
Home Loans	4.75% - 6%	Stable income, deposit of at least 20%
Car Loans	5.50% - 9%	Proof of employment, vehicle details

Eligibility for loans generally requires a stable income and a good credit score. Lenders, including those from Esteb and Co's extensive panel of 83+ lenders, will assess your financial history, current debts, and repayment capacity before approving a loan.

Steps to Take Before Applying for a Loan

Before you apply for a loan, it's essential to prepare thoroughly to enhance your chances of approval and to ensure you choose the best option for your circumstances. Here’s a step-by-step guide to help you navigate the process:

1. Assess Your Financial Situation: Evaluate your income, expenses, and existing debts to determine how much you can afford to borrow and repay.
2. Check Your Credit Score: A healthy credit score can significantly impact your eligibility and the interest rate you'll receive. Obtain your credit report and address any discrepancies.
3. Research Loan Options: Compare different loan products, interest rates, and terms. Esteb and Co can assist with personalised recommendations from their 83+ lender network.
4. Gather Necessary Documentation: Prepare documents such as proof of income, identification, and financial statements to streamline the application process.
5. Apply for Pre-Approval: Consider getting pre-approved to understand your borrowing capacity and demonstrate to sellers or agents that you are a serious buyer.

Tips and Considerations

When taking out a loan, there are several factors to consider to ensure it aligns with your financial goals:

• Understand the Total Cost: Beyond the interest rate, consider fees, charges, and the total repayment amount over the life of the loan.
• Evaluate Loan Terms: Shorter loan terms may have higher monthly payments but lower overall interest costs, while longer terms could ease monthly cash flow at a higher total cost.
• Be Aware of Variable Rates: If you opt for a variable interest rate, be prepared for potential fluctuations in repayment amounts.
• Consider Additional Repayments: Check if your loan allows for extra repayments without penalty, which can help you pay off the loan faster and save on interest.

Frequently Asked Questions

1. Do loans count as taxable income? No, loans are not considered taxable income because they must be repaid and do not represent earned income.
2. Can taking out a loan affect my ability to get other credit? Yes, a loan increases your liabilities, which can impact your credit score and borrowing capacity for future credit applications.
3. Are there loans specifically for people with bad credit? Yes, there are lenders who offer loans to individuals with bad credit, but they typically come with higher interest rates and stricter terms.
4. How can I improve my chances of loan approval? Maintain a good credit score, reduce existing debts, and provide thorough documentation to demonstrate your repayment capability.
5. What happens if I can't repay my loan? If you default on a loan, it can severely affect your credit score, and the lender may take legal action to recover the owed amount.
6. Can I use a loan for investment purposes? Yes, many people use loans for investment, but it's crucial to understand the risks and ensure the potential returns outweigh the costs.
7. Do lenders consider all my income sources? Generally, lenders consider all verifiable income sources, including salary, rental income, and dividends, when assessing your loan application.