More options for fast cash put banks behind
PERSONAL loans are in decline as consumers work to slash their debt, use other borrowing options and buy fewer cars.
New Reserve Bank of Australia data shows that the value of personal loans has sunk to its lowest level since 2015, down $4.8 billion in the past year to $146 billion.
It’s the second traditional type of consumer lending to slip into reverse, with separate RBA data showing credit cards have plunged in popularity – with 810,000 fewer accounts held nationally since January 2018.
However, money specialists say personal loans remain important for millions of consumers.
One of them is Greg Newbegin, who needed money in a hurry after his partner’s car “gave up the ghost”.
“I was caught between a rock and a hard place,” he said. “We had kids to get to school so we needed to get a loan within days.”
Mr Newbegin approached his bank for a car loan and was happy with the results. “They were willing to jump through hoops to get my business,” he said.
Cars are by far the most popular use of personal loans, according to research by comparison website Finder.com.au.
Almost half of all personal loan customers borrowed for a car, it found, followed by a holiday (9 per cent), home renovation (9 per cent), education (5 per cent) and wedding (5 per cent).
Falling car sales over the past two years may be one reason personal loan numbers are falling, and Finder.com.au insights manager Graham Cooke said the drop could also reflect people “starting to recessionproof their life” by lowering personal debt. “With the rise of peer-to-peer lending and new ways of deferring payments, like buy now, pay later, people are finding different ways to finance purchases that may have required a loan in the past,” he said. Mr Cooke said an estimated eight million Australians had taken a personal loan at some point in their
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life. “Personal loans still play a crucial role in making life happen for millions of Australians,” he said. “The huge life events that these loans fund – like weddings, education or travel to reconnect with family overseas – are often essential purchases.”
Mr Cooke said, when choosing a personal loan, people should check the fees, not just the interest rate, and ensure the loan terms suited their situation. He said to also check if there were penalties for early repayment.
People’s Choice Credit Union spokesman Stuart Symons said people had been more focused on using their mortgages as a source of funds.
“If they need finance, they have drawn upon their home loan’s available balance or offset account savings for a cheap, effective rate, especially given that home loan rates are at historic lows,” he said.
“The overall value of personal loans may have dropped, but they remain a relevant and affordable option for large, stand-alone purchases, particularly if people want to quarantine their home from their personal lending.”