ALG Australian Lending Group

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  • What is a Credit Score?

    Is my credit scores actually important? What is it really for?

    To begin, we’re going to define the difference between a credit file/report and a credit score.

    A credit report holds a variety of information about you, including both personal and financial elements. An assessment of your financial position is made using both the positive and negative data on your credit report. The outcome of this assessment is presented as a number which acts as a snapshot for the entire report. This number is your credit score and it appears on the front page of your credit report.

    Your credit score, therefore represents your past and current financial position. It gives lenders (the bank) an insight as to what kind of customer you may be. For example, if you have a high score then the bank will be more inclined to lend to you because you have a positive history in borrowing (and repaying) money.

    Lenders use a combination of your credit score and the details from your credit report to determine whether they want to lend to you. Your credit score and credit report are important because they can be the difference between getting a loan approved or declined.

    So what is considered to be a good credit score?

    When considering the various credit reporters in Australia, there are many different standards of a ‘good’ credit score. Fortunately, Equifax is a credit reporter in Australia that largely dominate the market. So, we use their standards as a benchmark and refer to their product when discussing specifics throughout this article.

    Equifax credit reporting can present a score between 0 and 1200. So the higher your score, the better. Most lenders would consider a credit score of 600 to be sufficient. Whereas having a score of approximately 800 would be considered above average. A client with a higher credit score is more desirable to lenders because they are seen as ‘less risky’. There are some lenders willing to provide finance for scores lower than 600. But unfortunately, they usually charge significantly higher interest rates to compensate for the risk they are taking on.

    What if I have a bad credit score?

    If you currently have a bad credit score then you’ll be pleased to hear that you have the ability to make it better! Comprehensive credit reporting was introduced into Australia in 2014. This means that all of your positive interactions with loans and repayments are now recorded on your credit file. Whereas it used to be that only negative interactions were recorded. So, repaying credit cards on time actually increases your score. Whilst defaulting on credit card repayments reduces your score.

    How do I find out what my credit score is?

    You can find your credit report online and view it for free annually here. It’s a great idea to utilise your yearly checks so that you can understand more about your credit file and how it’s impacted throughout the year. This also enables you to identify and rectify any misinformation or wrongfully recorded data such as personal details or missed repayments and defaults. You will essentially have the information needed to better your credit score and track it’s improvement.

  • Does Afterpay Affect My Mortgage Application?

    If you are thinking about buying a house or even a new car with the help of a loan and you’ve been wondering whether your Afterpay account will affect your chances of being approved, the answer is yes!

    Afterpay are in a unique position. Customers are indebted to them, and yet they aren’t regulated under the National Credit Act. The reason for this is because they are not charging interest, which is how a standard loan/credit facility would operate. Similar buy now, pay later schemes such as Zip Pay are achieving the same result using slightly different methods.

    Unfortunately for borrowers, this doesn’t stop banks from treating Afterpay/Zip Pay as a form of credit or debt. In fact, there are a number of reasons why a bank may decline your loan application if you’re signed up to a buy now, pay later scheme.

    It’s a testament to your money habits

    Using the service shows that you’re potentially willing to spend more than you earn on a regular basis. Even if you can afford the goods that you’re purchasing, the banks see this as somewhat reckless. If you can’t justify the purchase as a lump sump payment, then perhaps it’s something you wouldn’t have even bought if Afterpay wasn’t available. Essentially, lenders see the use of Afterpay as practicing and encouraging poor money habits. Therefore, they are less inclined to lend to you while you have an account.

    It looks bad if you’ve missed or made late repayments

    Lenders can ask for a history of bank statements (the time period requested depends on the type of loan). Banks will be aware of any recent missing or late repayments to Afterpay which will decrease the likelihood of them lending to you. If you miss payments to Afterpay, what would stop you from missing repayments to the bank?

    Reduced borrowing capacity

    If you’re using Afterpay frequently, the bank is likely to consider it as part of your monthly expenses. They will determine your average spend and by adding this to your monthly expenses, your borrowing capacity will reduce. This means you will have a smaller surplus (left over money) each month to make repayments with. So instead of borrowing $450,000 for your house purchase, the bank may only lend you $445,000 for example. The difference between the two figures could vary in a large way depending on average monthly Afterpay commitments.

    They’ll probably ask you to close the account anyway

    As discussed in the first point, lenders see Afterpay as encouragement to practice poor money skills. Instead of hoping that their customers don’t overspend to the point where they can no longer make loan repayments, they usually take the option away and ask for the account to be closed down before approving the loan. Therefore, it’s better to close the account in the months leading up to the loan application so that you potentially have a higher borrowing capacity as discussed in the last point.

    Your credit score could be affected

    If you do happen to default on repayments, Afterpay has the ability to report this and consequently lower your credit score. This means you would have adverse reporting on your credit file, which is something lenders usually avoid. Additionally, by having a credit score that is below average then this could eliminate a number of banks willing to lend to you.

  • Interest Rate vs. Comparison Rate – What’s The Difference?

    Most of us already know what the interest rate is when talking about loans. However, the comparison rate is less frequently talked about. It was actually created to benefit consumers by allowing them to accurately compare finance products such as home loans or car loans between different banks and non-bank lenders.

    Interest rate: A proportion of the loan that is paid by the borrower in addition to the original loan value which is presented as a percentage.

    Comparison rate: A summation of the costs incurred from a loan inclusive of interest rate and all additional expenses such as account keeping fees.

    Should I look at the interest rate or comparison rate?

    Both.

    The interest rate is no doubt an important aspect of every loan. Generally speaking, the lower, the better. So it’s helpful to know what interest rate is being offered on the loan that you’re considering.

    However, because the interest rate alone doesn’t consider additional costs such as account keeping fees, early exit fees etc. It can sometimes be misleading. A lender could offer a loan with a really low interest rate but have excessive additional fees which mean that you end up spending considerably more than expected.

    Here’s a simplified example comparing 2 loans:

    Loan A has a higher rate and lower fees. Loan B has a lower rate and higher fees. In some circumstances the cost of fees can outweigh the low interest rate. This is an example of that happening.

    Loan A
    $50,000 borrowed.
    Interest rate 3%.
    5 year term.
    Fees and charges = $950
    Final cost = 58,913.70

    Comparison rate = 3.57%

    Loan B
    $50,000 borrowed.
    Interest rate 2.5%.
    5 year term.
    Fees and charges = $2490
    Final cost = 59,060.41

    Comparison rate = 3.62%

    When considering the comparison rate, it shows us that Loan B is the more expensive loan, despite having a lower interest rate. Without looking at the comparison rate, a borrower may choose Loan B under the impression that it would be the cheaper of the two and then end up spending more compared to Loan A. It’s important to note that lenders don’t advertise the amount of their additional fees, which is why the comparison rate is such an important element in the finance industry.

    A good rule of thumb to follow is that the larger the gap there is between the interest rate and the comparison rate, the greater you are getting charged for additional fees. For example, an interest rate of 5% and a comparison rate of 8% for the same loan means you are getting charged a significant amount in fees that are separate from the interest repayments.

  • How Can I Improve My Loan Interest Rate and Chance of Approval?

    You’ll be pleased to hear that there are a multitude of things you can do to try and decrease the interest rate on consumer loans as well as improving your chances of receiving an approval!

    Some of these tips involve long term actions that would potentially be done before visiting your broker, whilst others are quite quick solutions to work in your favour.

    What can I do before visiting a broker?

    1. A history of stable employment

    This is always attractive to lenders as it suggests that you have a steady income and are less likely to struggle making repayments.

    Specifics:
    Generally, lenders look at the last 6 months to see if you’ve kept the same job in that time. Overall, they often look at 3 years of employment history to determine how often you change employers.

    Exceptions:
    If you’ve changed jobs but stayed in the same industry in the last 6 months, it’s not a huge concern for lenders. It also pays to talk to one of our experienced finance brokers as there can be further exceptions.

    2. Deposit Amount

    How much money are you willing to contribute as a deposit? As far as loans go, the greater your deposit, the more inclined a lender is to approve your loan application and offer you a lower interest rate.

    3. Credit Score

    The higher your credit score, the better! As a general rule, anything over 600 is considered satisfactory. However, keep in mind that the standards change between lenders.

    Specifics:

    • By ensuring that all current loan/debt repayments are made on time for their entire lifespan means that they won’t incur any negative reporting on your credit file.
    • Minimise loan applications as each one is listed as a credit enquiry, which can raise worry with lenders if there are an excessive amount.

    4. Stay away from payday lenders

    Payday lenders such as Nimble will have a detrimental effect on your ability to acquire a loan. Many banks and non-bank lenders refuse to lend to anyone with a payday loan within a 6 month period of that loan finishing.

    5. Are you living with parents or renting?

    Lenders often provide a better rate to someone who is renting rather than living at home with parents. The logic stems from the fact that renting is generally more expensive, so you’re already proving your ability to commit to those recurring expenses. Whereas, it is anticipated that people living at home will at some point move out and therefore incur higher living expenses. This could cause some people to no longer afford or prioritise their loan repayments. So the rate is higher because the risk for the bank is higher.

    What are some quick solutions to improving my chances of securing a loan?

    1. Delete your Afterpay account

    Getting rid of your Afterpay (or any buy now, pay later accounts) increases your chances of getting accepted and could potentially increase your borrowing capacity. Finalise your repayments and close the account!

    2. Cancel your credit cards

    If you have the ability to pay off any outstanding debts on your credit card, it is a great idea to do this and then cancel them all together. It’s likely that your lender will ask you to do this regardless.

    3. Age of your asset

    If you’re getting a loan to purchase an asset such as a car, then the age of the asset will actually affect your interest rate. The newer, the better according to lenders.

    Lenders generally have specified interest rates for assets of different age groups. For example, assets that are 3-6 years old may claim the same interest rate. However, these age groups differ for each lender, as do the rates.

    Finance brokers, however, are privy to these specific policies for each lender. This is just another reason that our brokers here at ALG are able to get you the best loan. We compare lenders by their policies and rates, specific to you.

  • How to Stay on Track with Mortgage Repayments

    5 Tips to Stay on Track

    Are you making your mortgage repayments but finding that your bank account is getting stretched every month? Use these 5 tips to stay on track or get back on track with your mortgage repayments.

    Take the “what if” test.

    Look at your mortgage repayments and ask yourself “what if” about multiple scenarios that could happen to you.

    What would your repayments be if interest rates go up? Would you still be able to afford them?
    What if your or your partner lost your job? What if someone in your family becomes injured and they incur medical expenses?
    Do you have a buffer of savings that you could draw on?

    If the answer to any of these questions makes you feel uneasy, then it could be time to re-evaluate your loan terms.

    Create a budget and stick to it.

    Make a budget to monitor your spending and help you to keep up with your mortgage repayments. It’s important to set a realistic budget. One that is achievable and provides flexibility for when life throws curve balls at you. A great way to stick to a budget is to automate additional savings or mortgage repayments. That way you don’t notice it leaving your account and then you’re left to spend the remaining funds as per your budget.

    Speak to your broker/lender

    As finance brokers, it is our job to manage your loan for the entirety of its term, not just at the beginning. If you ever have questions, then you are welcome and entitled to contact your broker for help.

    If you are struggling with mortgage repayments, then your lender is required to assess your situation and respond within a set period of time. It’s important to ask for help quickly before the situation gets worse.


    Remember that finance brokers and lenders have worked in the industry for many years and have seen a number of cases that are similar to yours. There is no need to be embarrassed or ashamed.

    Some solutions that lenders might offer:

    • An extended loan period. Meaning you make smaller repayments over a longer time. Note: this may lead to you paying more interest due to the increased term.
    • Postpone your repayments for an agreed period.
      In some circumstances, lenders will agree to postpone payments if clients are likely to regain control of their finances within a short time frame.
    • A combination of both solutions.

    Don’t be afraid to ask for help

    Many people have experienced financial struggles. The faster you reach out, the less serious your situation will be. If you are unsure about what to do or are having trouble getting the results you want, confidential help is available from a financial counsellor.

    Things to be wary of:

    • Using credit cards or getting payday loans.
      Going further into debt as a means of dealing with mortgage repayments is not a viable solution and will only increase the seriousness of the problem. Seek help before this avenue is taken.
    • Borrowing money from family and friends.
      Whilst this method has the potential to work, it grows your debt as well as potentially creating the feeling of being a financial burden to your loved ones.
    • Refinancing or consolidating debt.
      Whilst this too can be a beneficial way to manage debt, it’s important to get trusted financial advice before doing so. You may end up paying more on some loans and could be better off paying them down separately.
    • Switching home loans.
      Keep in mind that it could take time for you to recoup the costs of switching.

    Don’t struggle in silence. If you start to experience difficulty with your mortgage, approach your broker/lender as soon as possible to discuss your repayment options.

  • Why Use a Finance Broker?

    We’re here to clear up the misconceptions about finance brokers!

    The role of a finance broker may seem very elusive to those not working in the industry. Perhaps that’s because the role of a broker is heavily dependent on individual clients and their needs. Deals can differ widely on a number of variables.

    Essentially, as finance brokers, out role is to make getting loans an easy task for our clients. We liaise with the lender and work to get you the best deal with the lowest rate that we possibly can. It’s in our best interest, to work in your best interest, so that you keep coming back.

    Here’s a deeper look into what we do and why:

    • As finance brokers, our job is to get loans approved on behalf of our clients from a bank or non-bank lender.
    • We communicate with the bank so that you don’t have to.
    • A good broker will have a very clear understanding of each lenders policies and are able to determine which are the most suitable for their client. This reduces the pressure on the client from having to choose from an abundance of lenders in the market.
    • We liaise with business managers from the bank or non-bank lender. So we have the ability to run your scenario past them and discuss the likelihood of getting an approval as well as the best available loan options for you.
    • We seek out the best loan products and consider all aspects including but not limited to the interest rate. The rate is often seen as the most important. However, without equally as desirable repayment amounts, loan term, account keeping fees and exit fees, a loan may not be as affordable as it appears.

    Why choose a broker over a bank?

    • Each lender has different policies when it comes to accepting loans applications. They determine their clients based on these policies and therefore, different lenders often have very different client bases.
    • An example of a policy is that some lenders may accept clients with credit scores of below 600 and charge a high interest rate. Whilst some lenders may not lend to clients with credit scores under 600 at all.
    • Having a relationship with a lender’s business manager massively reduces the chance of getting a loan declined. It eliminates the lenders whose policies don’t align with individual clients.
    • Many people applying for loans have no idea what the lenders criteria are and get declined time and time again with little insight as to why.
    • You get to talk to the same broker throughout the entire process.
      Rather than speaking to someone different every time you inquire about your loan through a bank.
    • There is no lump sum cost for using our service. Instead, the cost is fully disclosed and worked into the loan repayments making them more manageable. Brokers are also paid by the lenders, reducing the fee incurred by clients.

    We find it extremely important to educate our clients throughout the loan application process. We acknowledge that some clients wish to learn more about the process than others. However, you should always finish a service with a finance broker with more knowledge than you had prior.

    Here at ALG we know that the quality of our work is directly reflected by our clients satisfaction. That’s why we perform to the best of our ability at all times.