We're getting better at managing money, stats show

We're getting better at managing money, stats show

Australians are taking out fewer personal loans and suffering fewer bankruptcies, new data has revealed.

There were $5.9 billion of personal finance commitments in August, according to the Australian Bureau of Statistics.

That was the same as the previous quarter but a 4.2 per cent decline on the previous year.

There has been an even sharper decline in insolvencies, according to the Australian Financial Security Authority.

There were 7,400 insolvencies in the September quarter – 9.5 per cent less than the previous quarter and 9.7 per cent less than the September 2017 quarter.

Those 7,400 insolvencies included:

  • 3,946 bankruptcies – down 10.3 per cent in quarterly terms and 6.8 per cent in annual terms
  • 3,417 part IX debt agreements – down 8.2 per cent in quarterly terms and 6.8 per cent in annual terms
  • 37 part X personal insolvency details – down 32.7 per cent in quarterly terms and 49.3 per cent in annual terms

Meanwhile, personal loan interest rates have barely changed during the past year, according to an analysis of all the personal loans listed on RateCity.

The average interest rate for all those loans, at the end of September, was 12.01 per cent, compared to 12.09 per cent the quarter before and 11.84 per cent the year before.

The average application fee at the end of September was $177.40 – down 0.6 per cent on the previous quarter but up 5.0 per cent on the previous year.

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Fact Checked -

This article was reviewed by Personal Finance Editor Alex Ritchie before it was published as part of RateCity's Fact Check process.

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Learn more about personal loans

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.

What are the pros and cons of debt consolidation?

In some instances, debt consolidation can help borrowers reduce their repayments or simplify them. For example, someone might take out a $7,000 personal loan at an interest rate of 8 per cent so they can repay an existing $4,000 personal loan at 10 per cent and a $3,000 credit card loan at 20 per cent.

However, debt consolidation can backfire if the borrower spends the extra money instead of using it to repay the new loan.

What are the Westpac personal loan eligibility criteria?

The process to apply for a personal loan from Westpac is simple and can be done online. To be eligible for a Westpac Bank personal loan, you must meet the eligibility criteria. These include:

  • You should be over 18 years old
  • You must be a permanent resident or hold a valid visa with confirmed employment in Australia
  • You should earn a regular and permanent income of at least $35,000 before taxes

If you feel you meet these eligibility criteria, you can apply for a personal loan with Westpac. With your application form, you’ll also have to submit the following documents:

  • Personal details including name, contact information, and residential address 
  • Proof of identity such as drivers licence or passport details
  • If you’re self-employed, you’ll need a list of assets, savings, investments, and liabilities as well as your most recent tax return information
  • If you’re an employee you’ll need to submit information related to your employment and finances like bank statements and payslips

Westpac Australia personal loans are available for amounts from $4,000 up to $50,000 and loan terms of up to seven years.

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.

Is a personal loan a variable or fixed-rate loan?

Depending on the personal loan lender, you may be able to choose between a fixed and a variable interest rate. But, there are a few distinct differences between the two, so it’s important to weigh up the pros and cons before deciding on what’s right for you.

A fixed interest rate loan gets you the convenience of knowing exactly how much you need to repay each fortnight or month. On the other hand, you generally won’t be able to make lump sum or advanced payments to close your personal loan early - or at least not without a penalty.

With a variable interest rate personal loan, you may be able to get a longer loan repayment term, with the option of paying off the loan early. You typically won’t need to pay any additional charges for an early full repayment either. The potential disadvantage with an interest rate that can change is that your repayment is not entirely predictable, as it can fluctuate with the market. However, you’ll likely have more options as more lenders offer a variable interest rate personal loan.

Can I merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full term.

Can you get an emergency loan on Centrelink?

When many lenders assess a borrower’s income to determine whether they can afford a loan’s repayments without ending up in financial stress, they may not count Centrelink payments as income for this purpose.

Before applying for an emergency loan, it may be worth contacting a potential lender to find out if they accept applications from borrowers on Centrelink.

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.

Do $4000 loans have no credit checks?

Many medium amount loans for $4000 have no credit checks and are instead assessed based on your current ability to repay the loan, rather than by looking at your credit history. While these loans can appear attractive to bad credit borrowers, it’s important to remember that they often have high fees and can be costlier than other options.

Personal loans for $4000 are more likely to have longer loan terms and will require a credit check as part of the application process. Bad credit borrowers may see their $4000 loan applications declined or have to pay higher interest rates than good credit borrowers.

How do I consolidate my debt if I have bad credit?

The worse your credit history, the harder you will find it to consolidate your debts, because lenders will be less willing to lend you money and will charge you higher interest rates.

However, people with bad credit histories can make debt consolidation work by following this three-step process:

  1. First, find a lender willing to give you a bad credit personal loan. This process will be simplified if you go through a finance broker or use a comparison website like RateCity.
  2. Second, make sure the interest repayments on your new loan are less than the repayments on the loans being replaced.
  3. Third, instead of spending those savings, use them to pay off the new loan.

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.

What is debt consolidation?

Debt consolidation is the process of rolling several old debts into one new debt, usually to save money or for the sake of convenience.

What are the pros and cons of bad credit personal loans?

In some instances, bad credit personal loans can help people with bad credit history to consolidate their debts, which can help make it easier for them to clear those debts. This is because the borrower might be able to consolidate several debts with higher interest rates (such as credit card loans) into one single debt with a lower interest rate and potentially fewer fees.

However, this strategy can backfire if the borrower spends the loaned funds instead of using it to repay the new loan. Another disadvantage of bad credit personal loans is that they have higher interest rates than regular personal loans.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.