If you’ve been keeping your eyes on the news the last few months you may have heard a lot about the Australian Securities and Investment Commission (ASIC) regulation changes to the car finance industry. If you’ve been wondering what this is all about and how it might affect you, we’ve broken it down below and just like our finance, we’ve tried to keep it simple.
What’s this all about?
Essentially ASIC has been investigating the automotive finance industry to determine whether customers have been paying overly high interest rates, allowing dealers and finance brokers to earn large commissions that are paid to them by the lenders. Dealers and finance brokers would sometimes charge the highest rate possible based on the customers’ ability to negotiate, rather than their financial position and credit score, resulting in customers paying thousands of dollars in interest charges over the lifetime of their loan! To stop this from happening, ASIC has removed flex commissions for consumer loan products, effective from 1st November 2018.
So this is good news?
Absolutely, in an industry that can be touted as misleading, these changes will increase transparency around interest rates and fees by dealers, lenders and brokers. As a customer you can feel confident that your interest rate is specifically customised to your profile, so you’ll know the rate you are quoted is competitive. You’ll also be able to receive a better interest rate if your profile is determined to be low risk which basically means you are asset backed (have a mortgage) and have a good credit rating (plus a steady and stable income).
Seems great! Is there a downside?
Depends how you view it, lenders will now need to reduce their risk by minimising the likelihood of loan defaults, and to do this they’ve introduced some strict rules. Your risk profile can now be impacted by any combination of the following attributes:
- Your age
- The age of the vehicle you’re looking to purchase
- Your living situation (if you own a home, rent, board, etc.) and how long you’ve lived there
- Your credit score and credit history
- The stability of your employment
- The cost of your desired loan vs. the value of the asset you’re looking to purchase
If your profile is determined to be high risk, then your interest rate may in turn be higher.
What you can do to help your profile?
- Don’t apply for loans with multiple lenders to get the best rate, this will negatively impact your credit score – a broker can assess your profile against multiple lenders without impacting your credit profile
- If you own a vehicle, trade it in or add a deposit to put towards your loan
- If possible, wait until you’ve lived in your current address or worked in your current job for a minimum of six months (this improves your stability)
Why use a broker?
They’ll take the time to understand your personal circumstances and compare multiple lenders to find a solution that’s right for you. When you’re ready to apply, a broker will do all the legwork for you, it can be a complex process, but we try and keep it simple at your end.
Want to learn more? Give us a call on 1300 787 288 - we can answer your questions and work with you to find out what your profile is.