What makes our Members (non-bank lenders) different from a bank lender?

All personal loans are governed by a strict set of Government regulations which set out a lender’s responsible lending obligations to their customers. These obligations include making sure that the customer can repay the loan without causing financial hardship. This means that their customers will receive “right sized” loans specific to their customer’s needs.

This is different to banks, building societies, and others which can only offer a credit card or a loan amount starting from a minimum of $5,000 in many cases. This bank minimum loan amount is usually far in excess of what the customer needs or wants. This type of lending in excess of needs is often the cause of debt stress where customers cannot handle the amount of debt that they incur in this way.

Customers come to our Members because they know they only want to borrow enough for what they need at present to cover the current expense or item purchase that they have in mind. As part of the lender’s responsible lending obligations, the customer will know the total cost of the loan with a set repayment plan up to when the loan is totally paid. This way the customer knows exactly how much they need to repay the loan and can then manage their budget more effectively. This is compared to credit cards which never give you a set schedule of repayments and set date for final payment.

Banks and credit card providers can in some cases, take weeks to make a decision on your loan application but NCPA Members can often approve a customer’s loan application within a matter of hours. During this time the lender would have done an assessment of your financial information and ability to repay the money so that the loan does not cause you financial hardship. This speedy assessment and approval time makes a personal loan a very convenient way of getting credit.

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If I can get a credit card why would I use a personal loan?

Credit cards can be a convenient source of credit if you know how to use it effectively and not fall into the debt trap that they can be. This is because credit cards are designed to encourage you to keep re-spending the amount of money that you originally borrowed. Also the monthly ‘repayment’ is always set at an amount which will draw out the date of full repayment for sometimes years instead of a matter of months for personal loans with most people not being aware of how that works.

Our Members’ customers often report that they have a credit card or have had one previously but don’t use it anymore because it encouraged them to just keep on spending when they really couldn’t afford it. Research studies have shown that the continued use of credit cards when you can’t afford to repay the money is a very common debt problem which people find hard to get out of.

In contrast to a never-ending credit card, a personal loan is a cost-effective, short-term credit option and customers will know exactly how much they have to budget for and when they will have the loan paid off; usually in a matter of weeks or months.

Some customers find that effectively budgeting to service a set amount over a set term and avoid spiralling debt is the biggest advantage of a personal loan over a credit card. Customers often report that deciding not to have a credit card is the best choice they ever made to help control their finances.

NCPA Members offer a range of financial products that could be tailored to your current borrowing needs. Borrowers find the flexibility of these options useful in choosing the right solution for their financial needs. They will know exactly what the loan will cost, what the repayments will be, and when the loan will be paid off. This information is given to the customer at the time the loan is taken out.

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I heard that non-bank loans have really high interest rates. Is this the case?

An interest rate does not tell you how much a loan will cost you.

You will often hear stories that non-bank loans have very high interest rates compared to banks. There will always be someone who says never to take out a loan unless it is with a bank. But these people don’t understand how loans work and what the difference is between these loans and what you can get from the banks.

Home loans usually come with the lowest interest rates available but these loans will take 20 to 30 years to pay off. A large personal loan through a bank will usually have higher interest than a home loan and may take up to ten years to repay. It is confusing and misleading to compare an annual interest rate for a home purchase or a large personal loan when a personal loan is usually repaid over a period of only a few weeks or months. It’s a bit like comparing the cost of a taxi ride to the shops to the cost of buying a car for that purpose.

If you wanted to borrow (say) $100 from a lender. The fees will probably be $20 as an establishment fee and then $4 per month over the period of the loan. If you pay out your loan according to the set schedule or sooner then you will have no problems with using a personal loan to solve your credit needs.

All NCPA Members, by law, must provide you with information that tells you: (a) the total cost of credit; (b) all charges and associated fees; and (c) when you will repay the loan under an agreed repayment schedule. This information must be set out in clear dollar amounts before issuing any loan.

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Do non-bank lenders only lend money for emergencies?

NCPA Members find that they are lending to customers for many reasons. This could be to deal with an emergency or an unexpected situation. But research has shown that customers can use a personal loan for things that are usually not classed as an emergency need for money.

The most common reasons customers give for requesting a personal loan are:

• Car registration and insurance
• Urgent car repairs
• Rental bond
• Fridge/washing machine replacement or repair
• Unexpected travel for funerals
• Funeral and medical costs
• Dental expenses
• To avoid bank and credit card fees
• Multiple utility bills coinciding
• Traffic/parking fines and legal expenses

Borrowers are also using small loans to help celebrate an important occasion, take a special holiday trip, pay school fees, and buy uniforms, etc. How customers use their money is their business. Our Members’ commitment is to always follow their responsible lending obligations and only lend to customers in a position to repay their loan and that customers understand the complete cost of the loan.

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How do I know whether I am eligible for a personal loan?

There are no restrictions on who can apply for a personal loan. But before providing a loan our Members, by law, must carry out their responsible lending obligations to ensure that you are able to afford the loan you are applying for. You will be asked for specific information about yourself, your income and spending to help them decide if you can afford the loan.

Bank statements will be used to verify your employment and other relevant details to confirm your financial position. Your bank statements will also show if you currently have other loans that you are paying off and whether or not your bank account goes into overdraft regularly. It is in the lender’s best interest to only lend to customers who can afford to make the repayments so this is an important step in the lending process. This step also ensures that you, as a potential customer, will not be over-burdened with debt repayment if you are approved for a loan.

Before applying for a loan, you can work out your budget to determine your disposable income and to track your expenses. This budget will help determine what you can realistically afford to borrow and successfully repay. The Government provides a website called Money Smart where you can find a free budget tool for such use. You may even find that, when you have set up your budget, you can find ways that alter your spending so that you do not need to borrow as much as you thought or any money at all.

Here is the link to the budget tool on the Money Smart website: https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/budget-planner

Click here for other helpful links about budgeting.

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