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What is Responsible Lending?

What is Responsible Lending?
More and more online lenders are emerging in Australia, but what processes are in place to ensure our safety?

With more and more online lenders emerging in Australia, many people are beginning to question how they are being regulated and can they be trusted? This begs the question: ‘what is responsible lending?’ Essentially, it is a concept that takes a close look at the responsibilities of the two parties of a loan. The two parties being both the borrower and the lender. It isn’t just the borrower’s responsibility to ensure that they can afford the loan.

Under Australian credit license laws, it is also the responsibility of the lender to ensure that the loan is suitable for the borrower. However, with many things happening in Australia, the lines have become blurred. Nowadays, responsible lending is something that is so important, yet so ignored.

Many lenders have been failing to adequately assess the applicants resulting in many missed payments. Keep reading to learn more about what is responsible lending in Australia.

responsible lending

What is responsible lending?

Many parts of the country have seen a significant property market downturn. This means that lending practices have seen a plethora of borrowers, most of whom took out multiple loans, fall into financial hardship. Many of them are claiming that lenders should have never been able to approve them in the first place.

So, what is responsible lending? Responsible lending occurs when both the borrower and lender have met the requirements and responsibilities on their behalfs. This is to ensure that the borrower is able to repay back the loan and continue making repayments. This is incredibly necessary.

Previously, responsible lending has been thrown out the window, but it is more important than people think. Being approved for a loan quickly and easily may sound good. However, it can sometimes be the devil in sheep’s clothing. Let’s talk about what responsible lending looks like next.

What does responsible lending look like?

Here are some things to remember so that your loan won’t cause you hardship now or in the future. Lenders should assess your:

• Assets
• Income
• Any details that may affect your ability to make your loan repayments
• Fixed and variable expenses
• Your living situation
• Any existing debts
• The number of people who are currently financially dependent on you
• Your employment situation

To ensure that you have chosen a good lender, make sure they ask the things above. They must also request the appropriate documentation such as recent payslips. As said above, quick and easy loans sound good, but loan application forms are long for a reason. Appreciate them for the safety they give you when borrowing. That is why you need to know what is responsible lending.

online loan risks

How lenders make their decision

To truly know what is responsible for lending, you should know how the lenders make their decision. Behind the scenes, they will carefully consider things such as:

• The amount of disposable income you have that will serve as a safety buffer if market conditions are to change
• What assets you will be able to use in order to secure your loan
• What other existing debts you have that could affect your ability to pay back your loan
• Whether or not your income sources are reliable over a long period of time

Being asked a lot of questions can be annoying, but it is all worth it. It can easily feel daunting when you see all of those questions. However, your lender isn’t judging you or making it hard on purpose. They want to help you to ensure that the loan will not hurt you in the long run.

ASIC regulatory guide on responsible lending

There are certain expectations for meeting the National Credit Act’s responsible lending standards. All lenders are required, by law, to take these three steps.

• Make reasonable inquiries about the consumer’s financial situation, and their requirements and objectives
• Take reasonable steps to verify the consumer’s financial situation by making a preliminary assessment
• Make a preliminary assessment (if you are providing credit assistance)
or final assessment (if you are the credit provider or lessor) about
whether the credit contract or consumer lease is ‘not unsuitable’ for the
consumer (based on the inquiries and information obtained in the first
two steps).

Not following through with these standards is a punishable offence. Severe fines, bans, or even remediation for affected customers can be expected. The lender in question will also have to deal with bad publicity and a bad reputation.

responsible lender

The bottom line: what is responsible lending

Do you require help with your finances? Well, the Australian Lending Centre makes applying for finance easier than ever! All you need to do is complete our online enquiry form and then wait to hear from us. The form won’t take any longer than 30 seconds.

We will carefully consider your application and discuss your situation over the phone to ensure that you are able to meet the terms of the loan. If your application is approved then you will receive the funds within as little as 24 hours!

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News Credit Card Consolidation

Credit Card Reforms 2020

credit card reforms
Credit cards can be great, but they can also cause bad debt.

It’s true that many of us have a love/hate relationship when it comes to our credit card. It’s great being able to swipe and pay with ease and offers so much convenience. At the same time, it is easier to spend above our means and get hit with a nasty bill at the end of the month that we may not have budgeted for. While credit cards can be really useful, they can also carry a heavy burden of debt with them. This is why credit card reforms are brought in; to help to protect you from sinking into unmanageable debt.

It is so easy to find yourself in a place of debt, with monthly fees added on top of your spending. The fact is, many people take out credit cards without being aware of how they work. For example, when are the fees applied and how can you manage things when you find yourself in a place of debt? For this reason, it is easy for people to spiral further and further.

Discover what changes the credit card reforms of 2020 have brought to the table and what they mean for you as a consumer.

Background for Credit Card Reforms 2020

The latest credit card reforms came into effect in January 2019.

In July 2018, ASIC released Report 580 Credit card lending in Australia. This found that more than one in six consumers is struggling with credit card debt.

ASIC’s review of credit card lending found:

  • In June 2017 there were almost 550,000 people in arrears. In addition, 930,000 people had persistent debt and an additional 435,000 people were repeatedly repaying small amounts.
  • Consumers carrying balances over time on high-interest rate cards could have saved more than $621 million in interest in 2016–17 if they had carried their balance on a card with a lower interest rate.
  • 63% of consumers did not cancel a card after a balance transfer. A substantial minority of consumers increased their total debt after transferring a balance.

The report made it clear that ASIC expects credit providers to:

  • Take proactive steps to address problematic credit card debt and products that do not suit consumers.
  • Minimise the extra credit provided to consumers who regularly exceed their credit limit.
  • Allocate repayments for all credit cards in the more favourable way required for cards entered into after July 2012.

These are general expectations of lenders, however, they are not legal requirements.

In September 2018, ASIC (the Australian Securities and Investments Commission) set a three-year period to be used by banks and credit providers when assessing a new credit card contract or credit limit increase for consumers. This means that credit providers must not provide a credit card with a credit limit that the consumer can’t repay within three years.

The aim of the 2020 credit card reform is to:

  • Prevent consumers from entering into an unsuitable credit card contract.
  • Ensure consumers have access to suitable credit card contracts.
  • Make it easier for consumers to cancel credit cards.
  • Ban unsolicited credit limit increase invitations (which can lead to people borrowing above their means).

Credit Card 2020 Facts

Here are some credit card facts, sourced from finder.com.

  • There are 14,088,998 credit cards in Australia as of May 2020.
  • Netting a national debt accruing interest of $23 billion.
  • Average credit card purchase: $105.38
  • Average percent of credit limit reached: 29%
  • National Australian spend on credit card purchases each month: $25,023,743,718.
  • 70% of Australian adults own a credit card.
  • Age groups with a credit card:
    • 65.07% are 18-35
    • 82.18% are 35-54
    • 79.84% are 55+.

How Do Credit Reforms Work?

credit card reforms 2020

The three-year period was chosen by ASIC after consulting with several banks and industry bodies. The idea is to ensure that the provider of the credit card is comfortable that you can pay off your credit limit in three years, before approving your application.

Rather than stopping people from being able to take out credit, these credit card reforms 2020 are in place to stop consumers from getting into debt.

Here are some commonly asked questions when it comes to the credit card reforms 2020:

Can I still take out a credit card?

Yes! You will still have the flexibility to make a low credit card repayment each month. The three-year period was designed to help consumers needing larger loans to have longer repayment options available.

How do banks and lenders assess whether I can pay back my card?

Each institution will have its own processes in place for determining this. This may involve looking at your credit history, including your credit score, along with the current financial situation.

While these credit card reforms 2020 may result in some people not being able to take out a credit card, it is likely only to affect a very small number of people. Consumers are still welcome to shop around for the best deal when taking out a credit card. Hopefully now with the aim of being able to pay them back without getting further and further into debt in the process.

Want to know more about taking out a credit card and how to make the process as easy as possible? The team at Australian Lending Centre can help you out. Simply give us a call or fill out an enquiry form today and get yourself set up on the path to financial stability (and not debt). We can also help you to find out how you will be assessed when it comes to taking out a credit card.

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Business Loans Debt Consolidation Low Doc Loans News

The Rise Of Non-Bank Lenders

The rise of non bank lenders||Advantages and disadvantages of non- bank lenders||The history of non bank lenders

There was once a time where if you needed a loan, you only visited a bank.  Fortunately, times have changed.

Yes, you can still go to a bank but there are now alternative; more convenient options. Non-Bank Lenders offer legitimate and competitive loans that are fast and flexible. Battling against traditional banks, Non-Bank lenders have created a competitive environment for lending in Australia.

What is a non-bank lender?

Non-bank lenders are a lender or financial institution who do not hold an Australian Banking License. Strictly speaking, they are not a bank, building society or a credit union. Non-bank lenders typically source their funds from wholesale funds either in Australia or overseas markets. They lend out these funds, with a margin. Depending on the size of the lender, they may offer mortgage, personal loans, commercial or business loans.

One of the key difference between traditional banks and non-bank lenders is that Non-bank lenders are not authorised to accept deposits from customers. Banks, building societies and credit unions are considered as authorised deposit institutions (ADI’s). They are regulated by APRA (Australia’s Prudential Regulatory Authority) and ASIC (Australian Securities Investments Commission). Non-bank lenders cannot accept deposits from consumers. They are regulated by ASIC.

The history of non-bank lenders

The history of non bank lenders

Australia has a sophisticated, highly regulated and competitive financial system. There was once a time where if you wanted a loan, your only option was to visit your big bank. The process was long and draining.  If you’re your income was low, you were more than likely denied for a home loan.

After the first half of the 1980s, deregulation began to slowly make its way into the market.  In the 1990s, a number of non- bank lender such as Australian Lending Centre began to enter the market. These alternative forms of lending offered Australians with lower interest rates than the big banks.

Following the Global Financial Crisis, Non-Bank Lenders were forced to source alternative forms of funding. As the markets became dry, non-bank lenders even turned to the big banks for funding.

The past few years have seen a proliferation in Non-bank lenders. In 2018, Non-bank lenders reached an all-time high of 11 percent of the market. As banks move towards more responsible lending, they are tightening their lending practices. So if you are sick of getting rejected for a loan, there are alternative options out there. Consumers are becoming more wary of this and have been exploring non-bank lending options.

The Advantages and Disadvantages of using non-bank lenders

Advantages and disadvantages of non- bank lenders

Is it safe to use a non-bank lender?

Absolutely. Non-bank lenders are safe to use. It is important to do your research beforehand. Alternative lending has evolved over the past decade. Make sure to find a lender that is not connected with bank failures. Find a reputable and well-established lender that offers a personalised loan for your financial situation.

What happens if a small lender collapses?

  • If the lender is a small agency, they may be acquired by a larger well-established lending agency
  • A larger financial institution may buy out the smaller lender
  • The government may step in and provide financial assistance. This will come through the Guarantee scheme for large deposits and wholesale funding.

Choosing the right lender

Alternative lenders such as Australian Lending Centre have helped thousands of Australians, find the ideal loan. We have a committed team of experts that specialise in providing you with the right loan. Our goal is to help you stay on track.

To learn more about the Australian Lending Centre, click here.

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Fast Loans

Quick Loan Myths Everyone Should Stop Believing

Quick Loan Myths: Debt Consolidation
Quick Loan Myths

There are a lot of quick loan myths in the loan industry which have negative perceptions. There are many misconceptions as some lenders employed unethical lending practices. As a result, a range of false or exaggerated perceptions has emerged. Still, you should know there are always two sides to every story.

6 Main Quick Loan Myths

1. Quick Loans Are Schemes That Rip You Off

To start with, due to the bad publicity that quick loans have received in recent years, most people have come to believe that these loan products are rip-off schemes. This one of the main quick loans myths.

Quick loans are suited for people that are in urgent need of cash but cannot access it elsewhere. Therefore, as long as you meet the loan repayment terms, everything is fine. Things are likely to get off track when you miss making repayments or you default – which applies to all types of loans.

2. Quick Loans Are Beneficial to Lenders Only

Moving on, another of the common quick loans myths is that providers of quick loans want to rip-off customers. However, considering that the lending criteria for these loans are really permissive, it makes sense for the interest rates to be as high as they are – especially since these loans usually don’t imply a credit rating check.

People with poor credit rating can seriously find these financing options life-changing. The only requirement you should meet is to have a steady income so that you can repay the loan in time. Also, since this type of loan doesn’t require collateral, the additional costs are greater than in the case of other types of financing.

3. Quick Loans Have Concealed Fees and Additional Costs

The list of popular myths regarding short-term loans continues. Many people are under the impression that payday loans come accompanied by hidden costs and fees the lender hesitates to disclose. The reason behind this assumption is that the majority of borrowers aren’t responsible enough to go through all the terms and conditions included in the signing papers.

It is against the law to conceal fees and additional costs – that is to say, all lenders based in Australia must be 100 percent transparent and upfront concerning the terms and conditions of the loan. Therefore, in order to avoid such scenarios, borrowers should take the time to scrutinise all the information about the loan product.

4. Quick Loans Are for People with Serious Financial Problems

Furthermore, there are also quick loan myths that short-term loans are provided for poor people with unstable financial situations. As mentioned, quick loans do not reflect financial stress, they simply offer people with an immediate alternative to cash.

Additionally, all types of people deal with financial difficulty. Therefore, it would be wrong to assume that whoever gets a quick loan is part of a specific segment of the population. As a matter of fact, when you need money for an emergency, it simply means that you’re going through something and there’s no other way in which you can get the money you need.

5. Payday Lenders Use Threatening Strategies to Collect Payments

While it’s true, to some extent, that some payday lenders use aggressive marketing techniques to promote their loan products, this doesn’t mean that they use threats to collect the payments.

Truthfully, reputable lenders, such as Australian Lending Centre are transparent and upfront regarding the terms of the financing. At the same time, reliable lenders never use these tactics. This merely means that you should do your research before picking out a lender out of the sea of lenders.

6. Taking Out Quick Loans Means That You’re Irresponsible

There is a common misconception that those who apply for a quick loan are financially irresponsible. Nevertheless, as long as you consider both the pros and cons of this decision, this doesn’t apply. It is implied that each financial decision has a range of pros and cons. It makes total sense for quick loans to have both pros and cons.

Evidently, the pros are that you get quick access to cash when you need it, without having to worry about the application process, adding collateral or a co-signer. When you need cash ASAP you don’t have time for these.

On the other side, the cons are that the interest rates are high and that, if you default on the loan, you might end up in financial hot water. Still, this applies for all types of financing – meaning that, regardless of the loan product you want to apply for, you should be 100 percent sure that your financial situation allows you to cope with making repayments.

Categories
Mortgage Financial Fitness Financial Planning Home Loans

Will My Car Loan Affect My Mortgage Application?

car loan mortgage application||car loans||Car Loans||car loans

A car loan can help you a lot if you plan to get your next car faster. However, a car loan can affect your mortgage application or other types of significant loans. If you are planning to buy an expensive car, this means that you will require a large loan. That car loan can impair your future borrowing power. But this doesn’t mean that you need to choose just one of these two.

Let’s see how a car loan can influence mortgage applications and how we can deal with such a situation.

First Things First

When you apply for a home loan, you will need to provide information regarding your financial status. This means that you will have to give documents regarding your monthly income, assets you own and other ongoing payments. This is how a lender will determine whether you can pay back the loan or not. Every lender wants to avoid doing business with people who might not be able to keep their word because of their financial problems. They want profit, not excuses.

If it were a personal loan, your mortgage application would be fine. But since we are talking about an expensive car loan, your mortgage application might get rejected due to your other massive loan. Either that or come with a lot of restrictions.

mortgage-application

Will My Car Loan Affect My Mortgage Application?

A car loan will have a high impact on your finances. Given all the taxes you need to pay, a car loan can take most of your monthly income. Still, aiming for a cheaper car might be of some help. Since cars tend to lose their value quite quickly, getting a very expensive one may not be a good idea, especially if you intend to apply for a mortgage.

Mortgage applications will act the same so that you will be left with little to no money. This is why a lender will probably have to refuse your mortgage application.

A lender wants to know that you will pay your mortgage and you won’t default on it. He will analyse your assets and other methods of income. If he sees that you have the financial power to afford a car loan and a mortgage at the same time, he might give you the green light. If not, it might be better for you if you only had one.

Defaulting on a mortgage is not a good sign for your lender and your finances. Car loans and home loans can quickly turn into uncontrollable debts, and you might end up losing everything. So don’t think of the lender as the bad guy, but be objective and calculate what you can and can’t afford, because in the end, if you are dishonest, you will suffer the most. Because banks and lenders make sure they never lose.

eligible-for-loan

Can I Still Be Eligible for a Mortgage Application?

Yes, you can. Your car loan will affect how much you can borrow, but if you don’t want an expensive house, that a limited amount of money can be just enough. If you can’t get the sum you need, you can search for an affordable home. When it comes to loans and money, flexibility is a must.

If you want to increase your chances of getting your mortgage application approved, then it’s time to clean a little bit of your credit file. Pay your debts and try to repair your bad credit. Also, consider debt consolidation as a possibility. Lenders will check your credit to find out who they are dealing with and also what other assets you own, just in case they might have to make up for that loan with something else rather than your money.

Having a savings account is a great idea. It makes you more trustworthy and responsible in the eyes of your lender. Let’s not forget that having some savings might help you quite a lot to reduce the amount you would apply for.

Also, try to talk to your lender. The more information he gets regarding your situation and income, the bigger the chance of getting your request approved. Don’t forget to tell him your exact plans.

suitable-car-loan

Final Thoughts

So, the short answer is that a car loan can influence mortgage applications and under certain circumstances, it can get your requests denied. But do not let yourself discouraged. Evaluate your possibilities, cut down on the unnecessary expenses and, if you can, try to pay ongoing debts before applying for a mortgage.

You can talk about these details with Australian Lending Centre. Our friendly consultants will tell you about your chances of receiving a loan and, if you fit our criteria, you may even get a good mortgage option. Advice never harmed anyone so you should not miss the chance of clarifying your options face to face with an expert.