Leslie Massey
There are several ways to borrow money in Australia, including through banks, building societies, credit unions, and online lenders. Peer-to-peer (P2P) lending is another option, where people looking to borrow money are matched with investors. Payday loans are also available, but these often come with high fees and cheaper alternatives should be considered. When applying for a loan, it's important to demonstrate financial responsibility, for example, by showing that you can save money regularly.
| Characteristics | Values |
|---|---|
| Borrowing options | Peer-to-peer lending, online lenders, banks, payday loans, cash loans |
| Peer-to-peer lending platforms | Moneysmart.gov.au |
| Online lenders | Harmoney, OurMoneyMarket, Unloan, loans.com.au |
| Borrowing amount | Up to $70,000 with Harmoney, $5,000 to $75,000 with OurMoneyMarket, up to $50,000 with MoneyMe |
| Interest rates | Varies, but online lenders offer lower rates than big banks |
| Application process | Online applications are common and usually faster than traditional lenders |
| Fees | Application, monthly account, early repayment, establishment, monthly management, etc. |
| Repayments | Usually in sync with pay cycles, with options for early repayment |
| Credit checks | Required for most loans, except payday loans |
| Approval time | Same-day funding possible with some lenders |
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Peer-to-peer lending
Peer-to-peer (P2P) lending matches people with money to invest and people looking for a loan. It cuts out the middleman (like a bank) and provides a direct link between borrowers and investors.
P2P lending platforms operate online, acting as an intermediary between investors and borrowers. They make money by charging fees to both parties. As an investor, P2P lending may offer attractive interest rates, which can vary depending on the platform operator and how they calculate it.
When investing via P2P lending, you buy a financial product, typically a managed fund. You decide how much money you want to invest, and depending on the platform, you may be able to decide how your money is used. For example, you could choose to fund a particular loan or invest in a portfolio of loans. You may also be able to choose the minimum interest rate and loan period.
Before investing, it is important to understand how P2P lending works and consider whether it suits your needs and goals. There is no government guarantee on funds, so if your investment is lost due to fraud or a platform error, you may not receive compensation. Make sure the platform operator has an Australian financial services (AFS) licence.
Marketlend is an example of a P2P lending platform in Australia. It provides a secure online solution, with insurance and loss protection available on eligible loans.
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Borrowing capacity
When calculating your borrowing capacity, lenders will consider your existing expenses or commitments, such as other debts you currently have. They will also factor in your potential repayments to understand how much you can afford to repay. This includes new expenses such as council rates, strata fees, house maintenance, insurance, and changes to existing expenses like utility rates.
To increase your borrowing capacity, you can take steps such as saving for a larger deposit or reducing your spending. Lenders will also view your ability to save regularly as a demonstration of financial responsibility and your capacity to manage loan repayments.
It is important to note that each lender will have their own unique criteria for calculating borrowing power, so your borrowing capacity may vary across different lenders. Additionally, online borrowing capacity calculators can provide a guide, but they do not take into account your individual circumstances, and it is always recommended to seek financial advice before making borrowing decisions.
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Online lenders
Online lending platforms have become increasingly popular due to their convenience, speed, and flexibility. They offer a quick and easy solution for managing your finances, especially for short-term needs. With online lenders, you can avoid the hassle of visiting a physical bank branch and save time by completing the entire loan application process from your computer or smartphone. This is incredibly advantageous for individuals with busy schedules.
If you're looking for a larger loan, online lenders like MONEYME offer cash loans of up to $50,000 with competitive fixed interest rates and no early payout fees. OurMoneyMarket is another option, offering loans between $5,000 and $75,000 with competitive fixed loan rates for borrowers with good credit and no monthly account or early repayment fees.
When choosing an online lender, it's important to research your options, check customer reviews, and ensure the lender is licensed and regulated. Additionally, each lender has different eligibility criteria, so be sure to check your eligibility before applying.
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Payday loans
In 2016, the Australian Securities and Investments Commission (ASIC) took action against several lenders, including Fair Go Finance, Nimble, and Cash Converters, for overcharging on interest and fees and failing to assess customers' financial circumstances adequately. Despite ASIC's efforts, some payday lenders have continued to operate unlawfully, finding new loopholes to exploit. In 2024, the federal court ruled against Cigno and BSF Solutions for issuing loans without a credit licence and charging prohibited fees.
To protect vulnerable Australians, the Australian Federal Government announced in 2017 that it was drafting new legislation for payday loans, consumer leases, and similar products. This included the Enhancements Bill, which aimed to cap fees and interest rates on payday loans. The bill was supported by consumer legal advocates, financial counsellors, and welfare agencies but faced strong opposition from the payday loan industry, which argued that the caps would lead to lenders exiting the market and negatively impact credit access.
While payday loans can provide fast access to cash, it is important to be aware of the potential risks, including high fees and unsustainable debt. It is always a good idea to consider other options and seek financial advice before taking out a payday loan.
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Credit rating
In Australia, credit scores are typically provided by three main companies: Equifax, Experian, and Dun & Bradstreet. The credit score range differs depending on the company, with scores ranging from zero to either 1000 or 1200. Equifax, the largest of the three, calculates scores based on several factors, including credit applications (51%), repayment history (30%), credit limits (3%), adverse events (10%), personal information (3%), and credit report age (3%). It's important to note that your credit score is dynamic and can change monthly as your financial circumstances evolve.
You can access your credit score and credit report for free. Checking your credit rating regularly is essential to ensure the accuracy of all information. If you identify any incorrect, outdated, or incomplete details, you should contact the credit provider or credit reporting agency to investigate and rectify the issue.
To improve your credit score, it's recommended to consistently pay your bills on time. Additionally, demonstrating financial responsibility by regularly contributing to your savings can enhance your creditworthiness.
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Frequently asked questions
There are several options for borrowing money in Australia, including:
- Online lenders like Harmoney, Unloan, and loans.com.au
- Peer-to-peer (P2P) lending platforms, which match people with money to invest and people looking for a loan
- Traditional banks, building societies, or credit unions
- Payday loans (although these often come with high fees and cheaper alternatives are usually available)
The approval process varies depending on the lender. Traditional banks and online lenders will likely require you to fill out an application and may perform a credit check. P2P lending platforms will also perform credit checks, but they may also allow you to choose the minimum interest rate and loan period that suits your needs.
The best option for borrowing money depends on your individual needs and financial situation. Consider factors such as the interest rate, fees, application process, and loan approval time when choosing a lender. It is also important to understand the risks associated with each option, such as the potential for high fees or the lack of government protection in the case of P2P lending.
