There are some big changes coming to lending laws in Australia – but how might these new regulations impact you as a borrower?
Below we’ll take a look at what the new credit rules mean for Aussies and how to ensure you’re protected.
The government has recently announced that it plans to remove the responsible lending obligation from the National Consumer Credit Protection Act (2009).
It might not sound great to remove a measure called “responsible”, but this is potentially good news for borrowers.
Currently, Australia’s strict lending laws can make it difficult to be approved for finance. When applying for a loan, customers often face a lengthy and complex vetting process as their credit history goes under the microscope.
This is largely in part due to the financial havoc wreaked by COVID-19. With Australia now in recession, the government has decided to step in and intervene in the hope of boosting economic activity.
Scaling back responsible lending laws will boost the flow of credit to households and small businesses, and this in turn may help to stimulate economic growth (at least in the short term).
New Finder research found almost one in five Australians (18%) have been rejected for a personal credit. Some of these rejections were the result of stricter lending rules. Recently, the Finder App just became the first in Australia to reveal a user’s chance of approval for select credit cards to help people from applying only to get rejected.
Under the current laws, the onus is on financial institutions to lend responsibly, but this is shifting to a “borrower accountability principle”.
If the lending laws are relaxed as planned, it will become easier to be approved for a home loan, personal loan or credit card. Borrowers will undergo less scrutiny from lenders when applying for products, and this can speed up access to funds.
But it will also be up to borrowers to ensure that they can service their debt.
So while you won’t need to provide your lender with as much information, you’ll need to be honest with yourself about what you can afford, and educate yourself on the risks involved.
For starters, only borrow what you can afford to repay. Consider the long-term implications of taking on debt. How much financial wiggle room do you have if your interest rate goes up? Will your repayments impact your ability to cover unexpected costs?
No matter what the end goal, whether it’s a home, a new car, or a holiday, it’s important to be realistic about whether you can afford it.
You also want to make informed borrowing decisions. Take the time to research the pros and cons of each type of loan or credit product before signing up.
The interest rate shouldn’t be the only thing that you’re comparing, you also want to assess features like the loan term, if they have implemented Comprehensive Credit Reporting (CCR) and your ability to make extra repayments.
If in doubt, get in touch with your lender. They can offer borrowing solutions and advice about how to manage your financial situation.
Keep in mind that despite the loosening of lending regulations, the government has confirmed that strong consumer protection laws will remain in place. Banks and lenders will need to remain compliant with credit licensing obligations and ensure that they’re being transparent.
While the changes are yet to fully come into effect, one thing remains clear: if you’re going to be applying for loans or credit cards, it’s important to do your homework first.
Written by Bessie Hassan
Bessie Hassan is the head of PR & Communications and a money expert at Finder. An accomplished public relations professional, journalist and editor, Bessie has written for a range of publications including the Sydney Morning Herald, The Australian, Marie Claire, Women’s Health, and more. Bessie has a passion for helping Australians find better financial solutions.