Proposed Changes to Australia’s Responsible Lending Laws

The federal government recently announced an economic recovery plan. It includes proposed changes to Australia’s responsible lending laws. These changes are designed to boost lending to stimulate the economy.

Read on to find out how the proposed changes could affect car and equipment finance.


What are the proposed changes?

Currently, lenders must take three steps in assessing a loan application:

1) make reasonable enquiries about the applicant’s financial situation and needs,

2) verify the applicant’s financial situation, and

3) assess that the loan isn’t unsuitable for the applicant.

Following the Royal Commission into the banking sector and some high profile cases brought forward by the Australian Securities and Investments Commission (ASIC), Lenders have been very conservative in interpreting what is a ‘suitable’ loan:  They often rely on very strict benchmarks for living expenses to assess whether a borrower can afford their loan repayments -regardless of what living expenses the declares.

The proposed changes will relax these responsible lending provisions for most lenders. Instead, it will be up to consumers to borrow responsibly. Most lenders will be able to rely on information provided by applicants to approve loans. They won’t have to interpret the three steps so strictly.

But that doesn’t mean you should get a loan if you can’t afford the repayments.

If you do, you’ll damage your credit score. This will make it harder for you to get any finance in the future. You will also get your car repossessed if you don’t make your loan repayments.


How will the changes affect car buyers?

If the changes are implemented, it should make it easier for you to get finance approved. A problem with Australia’s current lending laws is that they are very strict. Lenders are very cautious about granting approvals. Some people can’t even get approval to refinance to a lower interest rate with lower repayments. This is despite them having demonstrably met the higher repayments on their existing loans.

Right now, interest rates in Australia are at record lows. It’s a great time to apply for a car loan or refinance your existing loan to a lower interest rate if you can get an approval. The proposed changes will make that approval easier to get.


When could the changes come into effect?

If the proposed changes are passed by the Senate, they are likely to come into effect in March 2021.


How can you be sure you can afford your loan repayments?

The best way to ensure you can afford your loan repayments is to:

1) make sure you have a stable, secure job.

2) do up a budget to make sure you can afford your loan repayments.

A budget should be a realistic estimate of all your monthly income and expenses, and allow for one off unexpected costs. You need to have enough income after paying all your expenses to afford your loan repayments.

Your expenses will include two types: essential and non-essential. Essential expenses include food, electricity and rent. Non-essential expenses include things like entertainment and holidays. Aim to minimise or cut as many non-essential expenses as possible.

If you have quarterly , half-yearly or yearly expenses, set aside money for them in your budget.

Once you’ve done up a budget and had your loan approved, it’s important to stick to it!


How we can help

If you’re looking to buy a car and you need finance, talk to us. We’re finance brokers. We can make sure you get a great deal from our panel of over 50 lenders.

Don’t use dealer-arranged finance or try to arrange it yourself. If you do, you could end up paying a lot more. We arrange car finance for a living. We work for our clients, not for lenders.

Call 1300 301 051 during business hours to speak with one of our experienced brokers.

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