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.

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.

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.

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.

How do I know if I've got a bad credit history?

You can find out what your credit history looks like by accessing what's known as your credit rating or credit score. You're also able to check your credit report for free once per year.

What can I use a bad credit personal loan for?

Generally, bad credit personal loans can be used for the following purposes:

  • Debt consolidation
  • Paying bills
  • Buying vehicles
  • Moving expenses
  • Holidays
  • Weddings
  • Education

Some lenders restrict how their bad credit personal loans can be used as part of their commitment to responsible lending – be sure to check before applying.

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.

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 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.

Can I get guaranteed approval for a bad credit personal loan?

Few, if any, lenders would be willing to give guaranteed approval for a bad credit personal loan. Borrowers with bad credit histories can have more complicated financial circumstances than other borrowers, so lenders will want time to study your application. 

It’s all about risk. When someone applies for a personal loan, the lender evaluates how likely that borrower would be to repay the money. Lenders are more willing to give personal loans to borrowers with good credit than bad credit because there’s a higher likelihood that the personal loan will be repaid. 

So a borrower with good credit is more likely to have a loan approved and to be approved faster, while a borrower with bad credit is less likely to have a loan approved and, if they are approved, may be approved slower.