Are personal lenders dodgy?

Are personal lenders dodgy?

The personal lending sector has had a chequered history, but the authorities have taken steps in recent years to better protect consumers.

Personal lenders must abide by the National Credit Act, which began on 1 July 2010, and are regulated by the Australian Securities & Investments Commission (ASIC).

Since 1 March 2013, there have also been new laws affecting loans of $2,000 or less.

It is now illegal for personal lenders to ask for loans of $2,000 or less to be repaid within 15 days.

Furthermore, personal lenders can’t charge interest on loans of $2,000 or less and have limits on how much they can collect in fees and charges. That includes:

  • A one-off establishment fee of up to 20 per cent of the loan amount
  • A monthly account-keeping fee of up to 4 per cent of the loan amount
  • A government fee or charge
  • Default fees or charges of up to 200 per cent of the loan amount
  • Enforcement expenses if the borrower has to be chased for the money

 

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Repayment amounts are capped

The new laws that were introduced in March 2013 also affected larger loan amounts.

For loans between $2,001 and $5,000 that have a loan term between 16 days and two years:

  • Fees are limited to a one-off fee of $400
  • Interest rates are limited to 48 per cent (including all other fees and charges)

For loans greater than $5,001 or with loan terms longer than two years:

  • Interest rates are limited to 48 per cent (including all other fees and charges)

Loans must meet the borrower’s requirements

Personal lenders can’t operate unless they’re licensed with ASIC.

The National Credit Act also forbids personal lenders from issuing loans that don’t meet the borrower’s unique requirements or that would put the borrower in a position of hardship.

Before issuing a loan, personal lenders must do three things:

  • Make reasonable inquiries about the borrower’s financial situation
  • Take reasonable steps to verify the borrower’s financial situation
  • Decide whether the credit contract is “not unsuitable” for the borrower

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Learn more about personal loans

Which lenders offer bad credit personal loans?

Several dozen lenders offer bad credit personal loans in Australia. These are generally smaller lenders that aren’t household names.

Is it hard to improve your credit score?

It can be hard to improve your credit score, as it usually requires sacrifice and discipline, but hard doesn’t necessarily mean complicated. Some simple ways you can give your credit score a boost include closing extra credit cards, reducing your credit card limit, pay off any loans and make loan repayments on time.

As a general rule, the lower your credit score, the more remedies you can apply and the greater the scope for improvement.

What is comprehensive credit reporting?

Comprehensive credit reporting is a system which includes both positive and negative information on a person’s credit file. Before comprehensive credit reporting was introduced, only negative information was included.

What do single mothers need to apply for a personal loan?

Like other personal loan applicants, single mothers will likely need to provide a few documents to any potential lender, such as personal identification, bank statements (savings, loans, credit cards), proof of address, and proof of income (payslips, tax returns).

Do student personal loans require security?

While some personal loans can be secured by the value of an asset, such as a car or equity in a property, student personal loans are often unsecured, which typically have higher interest rates.

Some lenders also offer guarantor personal loans to students. These loans have lower interest rates, as a guarantor (usually a relative of the borrower with good credit) will fully or partially guarantee the loan, taking on the financial responsibility if the borrower defaults.

How long does it take to get a student personal loan?

Completing an online personal loan application can often take anywhere from 10 minutes to 1 hour. Depending on your lender, processing your personal loan application may take anywhere between 1 and 24 hours. If your personal loan application is approved, you may receive the money in your bank account the following business day, or, in some cases, the same day.

How are credit ratings/scores calculated?

Different credit reporting bodies may use different formulas to calculate credit scores. However, they use the same type of information: credit history and demographic profile.

They’re likely to look at how many credit applications you’ve made, which lender the applications were for, what purpose they were for, how much they were for and your repayment record. They’ll also look at your age and postcode. They’ll also look to see if you’ve had any bankruptcies or other relevant legal judgements against you.

Your score can change if your demographic profile changes or new information is added to your file (such as a new loan application) or existing information is removed from your file (i.e. because it has reached its expiry date).

What is a credit rating/score?

Your credit rating or credit score is a number that summarises how credit-worthy you are based on your credit history.

The lower your score, the more likely you are to be denied a loan or forced to pay a higher interest rate.

How long will I have bad credit?

Most negative events that appear on a person’s credit file will stay in their credit history for up to seven years.

You may be able to improve your credit score by correcting errors in your credit report, clearing outstanding debts, and maintaining good financial habits over time.

How long are $3000 loans?

Medium amount loans can be repaid between 16 days and 2 years. Many personal loans have terms between 1 year and 5 years, though some are as short as 6 months while others last for 10 years.

Generally, the shorter a loan’s term, the more expensive your regular repayments may be, but the less total interest you’ll pay. Loans with longer terms mean more affordable repayments, but more interest charges over the full term.

What is a secured bad credit personal loan?

A bad credit personal loan is 'secured' when the borrower offers up an asset, such as a car or jewellery, as collateral or security. If the borrower fails to repay the loan, the lender can then seize the asset to recoup its losses.

What is an unsecured bad credit personal loan?

A bad credit personal loan is ‘unsecured’ when the borrower doesn’t offer up an asset, such as a car or jewellery, as collateral or security. Lenders generally charge higher interest rates on unsecured loans than secured loans.

Are there alternatives to $2000 loans?

If you need to borrow $2000 or less, alternatives to getting a personal loan or payday loan include using a credit card or the redraw facility of your home, car or personal loan.

Before you borrow $2000 on a credit card, remember that interest will continue being charged on what you owe until you clear your credit card balance. To minimise your interest, consider prioritising paying off your credit card.

Before you draw down $2000 in extra repayments from your home, car or personal loan using a redraw facility, note that fees and charges may apply, and drawing money from your loan may mean your loan will take longer to repay, costing you more in total interest.

What interest rates are charged for personal loans?

Lenders aren’t allowed to charge interest on loans of $2,000 and under. Instead, they make their money by charging a one-off establishment fee of up to 20 per cent and a monthly account-keeping fee of up to four per cent. Lenders might also ask you to pay a government fee.

For loans between $2,001 and $5,000, lenders can make their money in only two ways: a one-off fee of $400 and annual interest rates of up to 48 per cent.

For loans of $5,001 and above, or for loans that have terms longer than two years, lenders can charge annual interest rates of up to 48 per cent.

Those fee caps don’t apply to loans offered by authorised deposit-taking institutions such as banks, building societies or credit unions, although such institutions are highly unlikely to charge interest rates of anywhere near 48 per cent.