New personal lending bounces back in May as vehicle loans jump

New personal lending saw a rebound in May for the first time this year, fresh data from the Australian Bureau of Statistics (ABS) show.

The value of new personal loan commitments surged by 14.5 per cent to $1.43 billion in May, up from $1.25 billion in April. 

This followed a steep plunge of about 25 per cent in April, which was its biggest recorded monthly fall in nearly two decades. The ABS attributed the sharp decline to COVID-19 impacts.

A loan commitment is a loan that has been approved by a lender and accepted by a borrower, according to the ABS.

However, new personal lending overall is still at low levels, the ABS noted, despite a record-low cash rate. New personal loan commitments dropped by 10.8 per cent in the 12 months to May 2020.

Personal loan refinances bumped up slightly by 5.5 per cent to more than $122 million in May. It was the first increase in refinancing since the start of the year.

But longer-term numbers show there is a growing trend for refinancing, with a nearly 12 per cent increase in refinancing over the year to May 2020.

What borrowers took out loans for in May

The increase in new personal lending was thanks to a jump in new road vehicle loans, which was up by more than 40 per cent in May. The rise in road vehicle loans followed a 37.5 per cent drop in April and came ahead of end-of-financial-year sales in June, when new vehicle sales activity saw a notable leap.

“The rise in the value of new loan commitments for fixed term personal finance was driven by a partial rebound in the value of new loan commitments for road vehicles”, ABS chief economist Bruce Hockman said.

It was not just road vehicle loans which saw an increase, loans for other transport vehicles and equipment also surged by 46 per cent in May.

But new lending for road vehicles and other transport vehicles still saw a decline over the year to May 2020, down by 13.5 per cent.

  Mar 2020 ($) Apr 2020 ($) May 2020 ($) Apr20-May 20 change May 19-May 20 change
Total personal loans (excluding refinancing) $1.66 billion $1.25 billion $1.43 billion 14.5% -10.8%
Road vehicle loans $1 billion $625 million $882 million 41.1% -13.5%
Other transport vehicle and equipment loans $45 million $30.9 million $45.2 million 46.2% -22.3%
Loans for the purchase of household and personal goods $119 million $103 million $94.9 million -7.8% -0.73%
Travel and holidays $20 million $2.2 million $2.1 million -4.5% -94.7%
Personal investment (excluding housing) $162 million $250 million $206 million -17.6% 46.7%
Refinances $160.5 million $116.4 million $122.8 million 5.5% 11.6%

Source: ABS.

In particular, personal loans for travel dropped a further 4.5 per cent in May and plummeted by almost 95 per cent since May 2019. 

Lending for travel may continue to drop, with Australia’s bans on international travel not expected to be lifted until at least some time next year. Domestic travel is also taking a hit due to a resurge in COVID-19 cases in parts of Victoria, with several state borders, including that of NSW, Queensland and South Australia, recently closing to Victorians. 

Personal lending fell in every other category in May. Loans for personal non-housing investment, down nearly 18 per cent, led the falls. But it also highest rate of growth over the year with a surge of some 47 per cent, indicating the volatile nature of this type of lending.

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Learn more about personal loans

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

Are there low doc personal loans?

Self-employed borrowers may be eligible for low doc personal loans, which require less documentation in their application process than many other personal loan options.

It’s important to remember that though low doc personal loans may require less paperwork, you may need to provide additional security, or pay a higher interest rate.

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.

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 $5000 loan?

Depending on the lender, personal loans and medium-amount loans for $5000 can sometimes be approved in under an hour, and give you access to the money the same day. Other loans may take 24 hours or longer to assess your application, and you may not get the money for a few days.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

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.

Can single mothers get personal loans online?

Many lenders offer online applications for personal loans, which can be convenient for borrowers who have busy lives. If you’re not confident your personal loan application will be approved, you may want to consider contacting the lender by email, live chat, phone, or by visiting a branch, to discuss your situation before applying.

Can unemployed single parents get personal loans?

It can be more difficult for unemployed borrowers to successfully apply for a personal loan. Most lenders require borrowers to have a regular income available to cover the cost of loan repayments.

If you’re self-employed, or if less than half of your income comes from Centrelink, you may not be eligible for some personal loan options. Consider contacting the lender before applying.

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.

Can I apply for a quick loan online?

While some lenders will require you to provide paperwork in person, many lenders will allow you to make an application for quick personal loan online. You’ll still need to provide information on your identity, income, and loan purpose in most cases.

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.