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‘Onus will shift’: How to tackle the 1 March lending changes

Anastasia Santoreneos
·3-min read
What do the responsible lending law changes mean for me? Source: Getty
What do the responsible lending law changes mean for me? Source: Getty

The Government has unveiled its plans to scrap the responsible lending laws, and experts are divided on whether this will make or break Aussies’ hip pockets.

Some say the changes scheduled for 1 March 2021 will free up access to credit and make getting a loan a whole lot easier. Others agree, but think that could lead to a “credit binge”, and could reverse some of the work done by the Banking Royal Commission, which ousted banks for taking advantage of vulnerable Australians.

No matter which view you side with, there are some important things you need to know, according to financial adviser and Employment Hero’s head of financial wellness, Ray Jaramis.

Accessing credit will be easier

Treasurer Josh Frydenberg said Aussies will no longer need to show their Netflix and Uber Eats histories to prove they can service a loan.

“We’re going to move that culture from the lender beware to a borrower’s responsibility,” Frydenberg said.

“Now, a lender will only want to lend money where it’s going to be profitable to do so, and the hope is that the client will pay that money back. So, they’re going to still need to verify the income and other details, but right now the pendulum has swung too far one way, and it’s not serving the interests of the consumers.”

But with new freedoms comes new responsibility, Jaramis said.

“With these proposed changes, banks can now lend money more easily. At the same time, the onus will shift to borrowers to make sure they are educated and understand what they are applying for,” he told Yahoo Finance.

“My cardinal rule is to do your homework and get good advice before taking on a loan.”

Be aware of your financial status

According to Brodie Haupt, co-founder of neo-financial services platform WLTH, you need to be more aware of what you can afford.

“Borrowers should be aware of their capacity to afford new or increased loans and ensure they have a good budget in place” he said.

“This will allow them to understand their own personal expenses, where and how they are spending their money, and the loan repayments they can afford to pay.”

Plan your future

With the onus shifting from lenders to borrowers, Aussies need to be more tight about their financial future too, said Jaramis.

“It is more important than ever to educate ourselves and make well informed decisions,” he said.

“Keep in mind that an application form can only capture so much information. Big life changes impact personal finances, such as children, illness or private school fees.

“These are changes which will likely impact your ability to pay off a loan. It is on you as the borrower to make sure you have taken this into consideration.”

Do your research

When it comes to approaching banks when the new laws kick in, it’s best to do your research, or engage a professional, Jaramis said

“The new changes do not impact a mortgage brokers’ ‘best interest duty’ obligations,” he said.

“They must continue to ensure their recommendations are in your best interest. A good broker will spend time with their clients, educating them on the mortgage options available as well as the merits and risks of each offering.”

If you don’t want to engage a broker, then you’ll need to have a really solid understanding of your own finances, Haupt said,

“Understand your expenses, how you spend your money, and what expenses you are willing to forgo to ensure you are able to pay your loan repayments now, and into the future.”

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