Australians are increasingly turning to personal loans, with new data showing the value of these loans jumping by nearly $30 billion in the months since May this year.
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The Finder.com.au analysis of Reserve Bank of Australia data also noted that the value of such loans had actually fallen by around $5 billion in the year leading up to May 2019.
However, in the months between May and July, personal loans rose by around $30 billion to $173.5 billion, before dipping to $170.7 billion in August.
Why is this happening?
“Across the market, we are seeing a flight from high-cost debt products like credit cards to cheaper and more responsible products like personal loans,” personal and peer-to-peer lender SocietyOne spokesperson Melissa Cicero told Yahoo Finance.
She said the majority of the $750 million in loans taken up at SocietyOne are for debt consolidation purposes.
“Much of the market, but especially millennials, are sick of banking and debt products that are designed to perpetuate the debt cycle and generate extra fees through complicated terms and conditions. This is why we are seeing such huge growth in the numbers of Australians willing to consider fintech offerings right now.”
Fellow peer-to-peer lender RateSetter has also seen a huge lift in interest, with an increase of $14 million in loans between the June 2019 and September 2019 quarters.
According to Cicero, the appeal of a personal loan also lies in the fact that it’s only one loan to worry about.
“And, assuming they stop using other credit cards, [consumers] are not at risk of increasing the debt.”
How to make the most of a personal loan
Finder money expert Bessie Hassan said timing is key when it comes to personal loans.
“Repaying your loan before the scheduled due date is a great goal to have. You will pay less interest than is set out in your loan contract and you may save annual or monthly fees as well,” she said.
“Many Aussie households are over-committed and it can make a world of difference to shave down debts.”
She said it also doesn’t hurt to spend less money on non-essentials, allowing you to save more and spend less.
“‘Spend low, save high’ should be programmed into our psyches more than ever now.”
Cicero added that borrowers should always take note of some lenders’ often complicated terms and conditions that can push the loan beyond affordability.
“Consumers should always be wary when considering taking a loan from any company, especially of the complicated terms and conditions that, beyond interest rates, can drive the cost of the loan beyond affordability,” Cicero added.
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