Young Australians file for bankruptcy

Young Australians file for bankruptcy

Whether it’s due to bad luck or a bad economy, thousands of Australians each year file for bankruptcy. But as many of them find, it’s no easy way out.

In the first three months of this year, 4774 Australians went bankrupt – that’s 53 people per day, according to the federal government’s Insolvency and Trustee Service.

New South Wales reported the highest number of personal bankruptcies with 1553 ahead of Queensland (1411), Victoria (934), South Australia (332), Western Australia (322), Tasmania (140) and the Northern Territory (23) in the March quarter.

Those numbers may seem high, but it’s worth noting that they’re the lowest quarterly figures recorded since the 1996 March quarter.

Still, many young Australians are going bankrupt and it’s ruining their lives.

In the last financial year, 1066 young Australians filed for bankruptcy before their 25th birthday.

Finance commentator, Tom Elliott, said bankruptcy can last between three and eight years, so it’s a very serious issue.

“It’s very serious to be filing for bankruptcy, whether you’re young or you’re old. It affects so many aspects of your life: you can struggle to borrow money while you’re a bankrupt, it’s hard to go overseas while you’re a bankrupt,” he told news TV program The Project.

So why do so many Australians file for bankruptcy each year when it’s clearly not an easy way out?

Gerard Brody, chief executive of the Consumer Action Law Centre, said it does seem that the availability of credit is a significant driving factor.

“Everywhere we go these days we see ads for credit cards or car finance or personal loans and those things can quickly eat up someone’s budget if they lose their job or their circumstances change things can spiral out of control quite quickly,” he said.

Borrowers and credit cardholders are being warned that bankruptcy shouldn’t be seen as an easy way out. Bankruptcy is placed on a person’s credit report for seven years.

“What many people don’t realise, though, is a bankruptcy will be put on what’s called the National Personal Insolvency Index forever – so that mark will be there forever,” Brody said.

“It will linger on for some time and will have an impact on people’s access to credit in the future.  For instance, if they want to get their life back together, get a home loan – that might be difficult for someone who’s had bankruptcy in the past.”

For those who find themselves struggling to repay an outstanding debt, the first thing you should do is contact your institution and talk to them about their financial hardship options, said Michelle Hutchison, spokeswoman for RateCity.

“Refinancing to a lower interest rate option could help to ease some pressure on repayments too. For instance, the average personal credit card interest rate in the RateCity database is 17.21 percent. By comparison, personal loans with interest rates below 10 percent are available through the site, so do your research, compare products, and take steps to help reduce your liabilities today,” she said.

For more information about dealing with financial hardship, financial counselling is a free service offered by community organisations, community legal centres and some government agencies or call the financial counselling hotline on 1800 007 007. 

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Learn more about personal loans

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.

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 do credit scores have to do with personal loan interest rates?

There is a strong link between credit scores and personal loan interest rates because many lenders use credit scores to help decide what interest rates to offer to potential borrowers.

If you have a higher credit score, lenders will probably classify you as a lower-risk borrower. That means they’ll be keen to win your business, so they may offer you a lower interest rate if you apply for a personal loan.

If you have a lower credit score, lenders will probably classify you as a higher-risk borrower. That means they might be concerned about you defaulting on the loan and costing them money. As a result, they might protect themselves by charging you a higher interest rate.

What causes bad credit history?

Bad credit history is caused by filing for bankruptcy, defaulting on your debts, falling behind on your repayments and having loan applications rejected. Lenders are wary of borrowers who demonstrate this sort of behaviour because it suggests they might struggle to repay future loans.

Borrowers with bad credit may find it more difficult to be approved for a loan, or they may get higher interest rates when they do get approved.

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.

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.

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 long will I have bad credit?

Most negative events that appear on a person’s credit file will stay in their credit history for up to seven years.

You may be able to improve your credit score by correcting errors in your credit report, clearing outstanding debts, and maintaining good financial habits over time.

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.

Can I get a no credit check personal loan?

Personal loans with no credit checks are available and called ‘payday loans’. These are sometimes used as short-term solutions for cash-strapped Australians. They often carry higher interest rates and fees than regular personal loans, and individuals risk putting themselves into a worsened cycle of debt.

Can students with no credit history get loans?

It is possible for students with no available history of borrowing or managing money to get a personal loan, though it may be more difficult as well as expensive than for borrowers with a good credit history.

Having no credit history means having no credit score. While many lenders may consider having no credit score to be better than having a bad credit score, they may still consider it riskier to lend to an unknown borrower and may charge higher interest rates or fees than to borrowers with good credit scores.

How can I improve my credit rating/score?

Your credit score will improve if you demonstrate that you’ve become more credit-worthy. You can do that by minimising loan applications, clearing up defaults and paying bills on time.

Another tip is to get the one free credit report you’re entitled to each year – that way, you’ll be able to identify and fix any errors.

If you want to fix an error, the first thing you should do is speak with the credit reporting body, which may take care of the problem or contact credit providers on your behalf.

The next step would be to contact your credit provider. If that doesn’t work, you can refer the matter to the credit provider’s independent dispute resolution scheme, which would be the Australian Financial Complaints Authority (AFCA).

AFCA provides consumers and small businesses with fair, free and independent dispute resolution for financial complaints.

If that doesn’t work, your final options are to contact the Privacy Commissioner and then the Office of the Information Commissioner.

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.

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.