Just like any modern economy, the Australian lending market is modern, fast and uses many of the techniques in credit assessment that can be found in other leading nations. These include credit history files, credit scoring techniques and basic common sense when reviewing applications.
The Australian banking system has faired reasonably well during the global financial crisis due to much tougher regulation and supervision of the markets and activities than a number of countries. That means that, in the main, it has one of the lowest exposures to the toxic assets that have blighted many other financial systems.
Unsecured loans (that is loans that do not rely on any other underlying security other than your promise to repay) are readily available. Good credit history is essential to get the best rates and terms. Loan amounts are usually between AU$3,000 and AU$40,000 although other options can be sought if you have very bad or very good credentials. Be prepared to prove your income and provided that you have a legal purpose for the loan, the application process can be completed in less than 20 minutes with funds available within 48 hours.
Secured loans are more common in Australia than in many places in the rest of the world, particularly in Europe. These loans are taken for a range of purposes such as to purchase a car, boat or caravan, or for debt consolidation. Borrowers are required to provide some form of security, such as a charge over property or other valuable assets, which can be surrendered should you fail to keep up the repayments on your loan. Rates tend to be lower than with unsecured loans due to the extra security afforded to the lender. The amount that can be borrowed also increases and is only limited by your ability to repay and the value of the security you are offering. Loans secured on a car, caravan or boat can be for up to 7 years and AU$100,000 or more. There is usually an establishment fee of around AU$200 and a monthly service charge in addition to the capital and interest payments. Loans up to 7 years will usually be on a fixed interest rate meaning that the repayments will remain the same for the full term. Larger amounts for longer periods will be on a variable rate basis meaning that the capital paid remains constant through the term but the interest charged on the outstanding balance will track a bank base rate plus a fixed margin.
As with any secured loan or home mortgage, if you fail to make the monthly payments as scheduled you may lose the assets offered as security. If the property when surrendered does not sell for enough to pay off the outstanding loan, then you will also be liable for the difference. If you fail to make the repayments under an unsecured loan then you will be sued through the courts and an enforcement order sought against you. With such an order an authorised representative of the court may seize any assets necessary to be sold to realise the sums due.
So, it is clear that there is risk in borrowing, but if you furnish yourself with as much information as possible and compare the products the market has to offer, you will be taking sensible steps to mitigate this risk and ensure that you are borrowing only what you can reasonably afford. Although we will never make recommendations on particular products, Cheaper Option aims to provide you with this information so that you can be comfortable that you have made the decision that is right for you.
