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Aussies rack up $18 billion of debt over Christmas
Debt is the last thing most Australians want to talk about, despite the country owing more than $18 billion in credit card and loan debt over Christmas alone.
What are shares loans?
If you are applying for a personal loan, lender will often want to secure the loan with some type of collateral. Loans may be secured against a property or a car, for example, and if you fail to repay the debt you would be in danger of losing these assets.
Shares loans are another type of secured loan usually known as margin loans, where you borrow money that you are going to invest. The shares or managed funds you invest in are used as the collateral to give the lender security. Shares loans are for those who are dedicated investors, so if you are looking to use a shares loan as an investment vehicle you should be someone that actively monitors and manages investments.
Why do people use shares loans?
If developing your portfolio of investments is an integral part of your financial plans but you don't have sufficient spare cash to take out further investments, then shares loans can help to bridge that gap. You need to be knowledgeable about how the financial markets work and be clear about the pros and cons of this type of borrowing. It's not for everyone so if you are considering it make sure you really do have a broad understanding of what you are doing.
What are the main features of shares loans?
When you are loaned money to buy shares your lender uses the shares you buy as security. If you don't repay the loan the lender is entitled to sell the shares so the loan is repaid. Share prices move frequently, exposing you to the risk of them falling in value as well as increasing. Lenders will gauge the risk of a loan by using a Loan to Value Ratio (LVR). They will calculate the LVR by dividing the amount of your loan by the overall value of your shares. The majority of lenders will require you to maintain a LVR below 70%, with that being the maximum level. If your investment values fall to where the loan exceeds the agreed maximum LVR you may have to top up your investment or make a repayment of some of the loan, known as a "margin call".
You should explore a range of options before taking out a shares loan to ensure you are getting an appropriate deal, especially relating to terms, conditions and fees.
What are the pros and cons of shares loans?
Shares loans are considered high risk. High risks mean that if the market in your shares does well you could make good money. Equally if the market falls you could be facing considerable losses and have to sell some of your investment to meet a margin call – the price will be low and you'll have lost money. If you use your home as collateral as well as shares you could lose it, and lenders may also require you to pay of the loan at short notice if they decide your collateral is no longer viable to secure your investment.
Kate was one of RateCity's Personal Finance Commentators. She has been a journalist for more than a decade, most of which has been spent writing about money. Most recently, she was the Australian Financial Review's personal finance correspondent. She is passionate about personal finance and women's independence.
In the best-case scenario, an application for a bad credit personal loan can be made within minutes and then be approved within 24 hours.
If you’re having trouble being approved for a loan of less than $2000, and urgently need to purchase household essentials, there may be emergency loan options available to you.
For example, the No Interest Loans Scheme (NILS) allows low-income borrowers to take out interest-free loans of up to $1500 for essential goods and services.
For further assistance, consider contacting a financial counsellor, or calling the National Debt Helpline on 1300 007 007
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. First, find a lender willing to give you a bad credit personal loan – this process will be simplified if you go through a mortgage broker or use a comparison website like RateCity. Second, make sure the interest repayments on your new loan are less than the repayments on the loans being replaced. Third, instead of spending those savings, use them to repay the new loan.
Some lenders are able to approve applications over the internet and within minutes. However, there is a catch. People who take out easy/instant loans generally pay higher interest rates and are restricted to lower amounts than people who follow a traditional borrowing process.
Comprehensive credit reporting may change your credit score – either positively or negatively.
Under comprehensive credit reporting, credit providers will share more information 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. For some consumers, that will lead to higher scores; for others, lower scores.
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 get that approval faster, while a borrower with bad credit is less likely to have a loan approved and to get that approval slower.
When many lenders assess a borrower’s income to determine whether they can afford a loan’s repayments without ending up in financial stress, they may not count Centrelink payments as income for this purpose.
Before applying for an emergency loan, it may be worth contacting a potential lender to find out if they accept applications from borrowers on Centrelink.
The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:
- The big four banks (ANZ, Commonwealth Bank, NAB and Westpac)
- Smaller banks (such as Bank of Queensland, Bendigo Bank and MyState)
- Mutual banks (such as Heritage Bank, Greater Bank and Newcastle Permanent)
- Credit unions (such as People’s Choice Credit Union, BCU and Community First Credit Union)
- Non-bank lenders (such as Pepper Money, Liberty and RACV)
- Peer-to-peer marketplaces (such as Harmoney, SocietyOne and RateSetter)
There are three main ways to access personal loans. You can go through a comparison website, such as RateCity. You can use a finance broker. Or you can directly contact the lender.
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, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.
If more than half of your income comes from Centrelink benefits, it may be more difficult to have a $2000 loan application approved. Many lenders will check if you can afford a loan’s repayments on the income from your job before they’ll approve an application, and many won’t count Centrelink payments when assessing your income for this purpose.
Some lenders will offer $2000 loans to borrowers on Centrelink – consider contacting potential lenders to check before applying.