Dozens of lenders have slashed rates on personal loans after commitments tumbled, luring new customers and likely contributing to car sales climbing for the first time in two-and-a-half years.
Immediately after the pandemic, in the months of March and April, personal loan commitments plummeted by 33 per cent, according to the Australian Bureau of Statistics (ABS).
But since then, a RateCity analysis has found more than 30 lenders have cut over 100 personal loans by an average of 0.78 per cent, helping commitments mostly recover to pre-pandemic levels.
The analysis found the average personal loan has an interest rate starting from 11.33 per cent in November, about 0.16 per cent less when compared to April.
But there’s many lenders undercutting the average.
Other than the loans for members of the police or defence force, Endeavour/Sydney Mutual Bank is offering secured personal loans with interest starting from 4.45 per cent -- the lowest in the RateCity database.
It’s followed closely by Coastline Credit Union’s secured personal loan, which offers a minimum rate of 4.61 per cent.
People are making big purchases again
Personal loans can be used to make large purchases, including to pay for a wedding, holiday, medical bills, renovations, a car or boat.
The tumble they experienced in commitments hinted that people didn’t feel secure enough to make a big purchase during a pandemic.
In fact, the people who could weren’t spending; instead, they were saving about a fifth of their income.
But it looks like confidence has largely returned. Personal loan commitments are down by only 2.6 per cent in the ten months since the beginning of the year, having recovered more than 30 per cent to $1.6 billion in value.
The rebound is owed to people buying more cars, Amanda Senevirante said, head of Finance and Wealth at the ABS.
“The value of new loan commitments for fixed term personal finance rose 4.3 per cent in October, seasonally adjusted, as commitments for vehicles continued to recover” she said.
Breaking a 31 month streak of falling sales
The ABS hasn’t published statistics on personal loan commitments for November, but above-average sales in the car industry hints it could be another high.
A two and a half year streak of declining new car sales was broken in the month of November. Sales were up by 12.4 per cent to 95,205 when compared to the same period a year earlier, the Federal Chamber of Automotive Industries revealed.
The lift wasn’t enough to offset the year’s performance, however, which is down 16.1 per cent.
“With the Australian economy showing improvement, it’s good news to see new vehicle sales trending in a more positive direction,” Tony Weber said, chief executive of FCAI.
“We believe there are a few contributing factors, including rising optimism from the Australian public as COVID-19 restrictions ease … backed by government support programs during the pandemic, the easing of lending restrictions, and the current competitive automotive market.”
Mr Weber said Australians, unable to spend on international travel, were choosing to spend their money buying new cars this year.
Getting approved for a loan could get easier
Legislation introduced into parliament last week that would scrap responsible lending rules could supercharge the number of personal loan applications that are approved.
Treasurer Josh Frydenberg said the removal of Responsible Lending Obligations (RLO) -- consumer protections that require banks to make sure a person can afford to repay the debt they’re being sold -- will make it easier for people to secure personal loans and other forms of credit.
The legislation will “further support Australia’s economic recovery by reducing the costs and time it takes for consumers and businesses to access credit,” Mr Frydenberg said.
The reforms will enable “the more efficient flow of credit to consumers and small businesses, while also strengthening protections for higher risk products and vulnerable consumers using small amount credit contracts and consumer leases.”
Consumer groups uniformly decried the announcement, claiming the reforms will lead to people taking out loans they can’t afford to repay.
But the news was warmly welcomed by the majority of industries, including the FCAI.
“Freeing up restrictions around financial lending will act as a stimulus for Australian industry,” Mr Weber said.
“As we strive to recover from the COVID-19 pandemic, a more efficient flow of credit to consumers and small business will be a strong stimulant to the economy.”