Australians tighten their belts on personal loans

Australians tighten their belts on personal loans

Total and new personal loans have plummeted, as Australians prepare for long-term economic pain due to COVID-19.

The value of new loan commitments for fixed-term personal loans fell by 8.2 per cent to $1.66 billion in March 2020, according to fresh data from Australian Bureau of Statistics (ABS). It marks the biggest monthly drop since November 2008, during the global financial crisis.

Personal loans still saw an increase of 0.5 per cent in the 12 months to March 2020.

The ABS attributed the March decline to a 10 per cent fall in road vehicle lending, while loans for travel and holidays plunged by about 42 per cent, as Australian borders closed to stop the coronavirus spread.

Total outstanding personal credit, which includes personal loans and credit cards, edged down by 1.4 per cent to about $163 billion in March 2020, the latest Reserve Bank of Australia data showed. It dropped by 6.5 per cent in the 12 months to March 2020.

Loans overall, including housing, personal and business, increased by 1.1 per cent in March and 3.6 per cent over the year.

Personal credit was the only segment to see a decline.

The findings align with NAB’s latest quarterly Australian Consumer Anxiety Survey, which found that consumers increased their spending on paying off existing debts.

Personal finances tumble downhill

More than 30 per cent of Australians have seen their household finances worsen in the month to mid-April, a new ABS survey indicated.

“One in 13 Australians (7.5 per cent) said their household lacked the money to pay one or more bills on time, and one in ten (10 per cent) had to draw on accumulated savings to support basic living expenses,” said Michelle Marquardt, ABS Program Manager for Household Surveys.

About a quarter of Australian adults received the first one-off $750 economic support payment from the government.

The ABS poll also found that: 

  • 81 per cent of Australians say they could come up with $2,000 for an important expense within a week.
  • One in eight said they could access $500 but not $2,000 within a week.
  • 5 per cent would not be able to raise $500.

Most households held savings buffers when the economic downturn began, the RBA’s latest Financial Stability Review suggested.

Employees who have seen a hit to their incomes would be able to access wage subsidies and superannuation funds to help them through the slump. Mortgage repayment deferrals will also help Aussies manage their larger debts.

To see a list of lenders providing breathing room to affected Aussies, check out RateCity’s COVID-19 relief hub.

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Learn more about personal 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.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

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.

Will comprehensive credit reporting change my credit score?

Comprehensive credit reporting may change your credit score, either positively or negatively, depending on an individual's situation.

Under comprehensive credit reporting, credit providers will share more information, both positive and negative, about how you and other Australians manage credit products. That means credit reporting bureaus will be able to make a more thorough assessment of everyone’s credit behaviour. That will lead to higher scores for some consumers and lower scores for others.

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).

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 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.

What causes bad credit ratings/scores?

Failing to repay loans and bills will damage your credit score. So will falling behind on your repayments. Your credit score will also suffer if you apply for credit too often or have credit applications rejected.

Can I get a $4000 personal loan if I’m unemployed or on Centrelink?

Before most providers of personal loans or medium amount loans will approve an application, they’ll want to know you can afford the loan’s repayments on your current income without ending up in financial stress. Several lenders don’t count Centrelink benefits when assessing a borrower’s income for this purpose, so these borrowers may find it more difficult to be approved for a loan.

If you’re unemployed, self-employed, or if more than 50% of your income come from Centrelink, consider contacting a potential lender before applying to find out whether they accept borrowers on Centrelink.

What documentation is needed for a self-employed personal loan?

Personal loans may require a borrower to provide proof of identity, proof of residence, details of any other outstanding loans (including credit cards), details of assets they own (e.g. savings, car, property), and proof of income.

While borrowers in full-time or part-time employment can often provide payslips and similar documents to prove their income, self-employed borrowers may need to provide other documents, such as bank statements or tax returns, to demonstrate that their income can cover a loan’s repayments.

When was comprehensive credit reporting introduced?

Comprehensive credit reporting was introduced to make credit reports fairer and more accurate. Under the previous system, credit providers only saw negative information about potential borrowers. Now, they're able to see both positive and negative information, which means that credit providers can see if a borrower’s negative credit behaviour is consistent or a mere one-off.

What do single parents need for a personal loan application?

Much like applying for other personal loans, applying for personal loans for single parents will likely require the following:

  • Proof of identity
  • Proof of residence
  • Proof of income
  • Details of assets (e.g. car, home)
  • Details of liabilities (e.g. credit cards, other loans)
  • Loan amount
  • Loan term

Can I get a fast loan with bad credit?

Some lenders offer fast loans to borrowers with bad credit. Providers of small payday loans of up to $2000 or medium amount loans of up to $5000 may have no credit checks, though these lenders will usually want to confirm you can afford its loans on your income.