Personal loans in high demand

Personal loans in high demand

An increasing number of Australians are applying for personal loans and turning away from credit cards and mortgages, according to new figures from Equifax.

The latest Quarterly Consumer Credit Demand Index from consumer credit bureau, Equifax, provides an early indication of movements in consumer spending and retail sales.

Key findings of the latest Index included a rise in demand for consumer credit of 10.3% in the June 2017 quarter, reportedly driven primarily by an increase in personal loan applications by 18.4% in the June 2017 quarter.

In the same period, credit card applications increased by just 2.3%, and mortgage applications fell by 0.9%.

Looking more closely at the personal loan figures, Equifax found that applications for car loans fell by 1.5%, while non-auto personal loan applications increased by 26.5%.

Also, over the past three years, applications to traditional lenders (financial institutions such as credit unions, local and international banks) remained stable, while applications to lenders outside this group (including recently established lenders with niche offerings, such as alternate payment options in an online, point-of-sale environment) increased 2.5 times.

According to Equifax senior GM consumer products, Angus Luffman, these figures indicate that Australian attitudes to credit are changing:

“The average value amount a consumer applies for on a credit card has doubled in the past three years. Yet, in the same period, the total credit card balances accruing interest have declined.”

“This suggests consumers are using credit cards more frequently for every day purchases, while also being careful not to add to the debt load. The lift in personal loans indicates consumers are turning to this line of credit as a means to support household and discretionary expenditure.”

“Given the current subdued growth in household incomes, and below-neutral consumer sentiment, it is understandable that Australians may be becoming more circumspect in their use of consumer credit products.”

Increase in consumer credit applications (quarterly year on year %)

Sector Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17
Credit Demand Index 4.4% 1.8% 2.5% 7.7% 5% 10.3%
Credit Cards 1.8% -0.7% -0.3% 2.9% -3.6% 2.3%
Personal Loans 7.2% 4.5% 5.3% 12.3% 14% 18.4%
Personal Loans (Auto) 0.7% 8.7% 8% 4.4% -1.9% -1.5%
Personal Loans (Non Auto) 9.8% 2.9% 4.2% 15.1% 19.9% 26.5%
Mortgage Demand -0.4% -3.2% 0.9% 6.7% 4.5% -0.9%

Source: Equifax

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Learn more about personal loans

Are there emergency loans with no credit checks?

While many personal loans require a credit check as part of the application process, some personal loans and payday loans have no credit checks, which may appeal to some borrowers with a bad credit score.

Keep in mind that even if a loan is available with no credit check, the lender will likely want to confirm that you can afford the repayments on your current income.

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 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.

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.

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.

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 are the pros and cons of personal loans?

The advantages of personal loans are that they’re easier to obtain than mortgages and usually have lower interest rates than credit cards.

One disadvantage with personal loans is that you have to go through a formal application process, unlike when you borrow money on your credit card. Another disadvantage is that you’ll be charged a higher interest rate than if you borrowed the money as part of a mortgage.

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

Can I include my spouse’s income on a personal loan?

If you apply for a joint personal loan with your spouse, you can include their income on the application. If approved, they then become jointly liable for the loan.

Both you and your spouse need to meet the eligibility criteria, such as income, age, and residency requirements, as stipulated by the lender. A joint loan could increase your chance of approval for a higher amount, as both borrowers’ incomes are assessed when determining borrowing capacity. 

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.

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.

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.