SECTOR REPORT: PERSONAL LOANS
As well as building up record amounts of wealth and squirrelling away cash in savings accounts, Australians are currently borrowing in record amounts too. In this sector report, partnered by Wisr, Annie Kane takes a close look at how personal loans have been faring and what key trends brokers should look out for
Australian households are wealthier than they have ever been, with household wealth increasing to a record $14.9 trillion in March, according to the Australian Bureau of Statistics (ABS). But while Aussies have been flush with cash in the last few years – and built up considerable savings buffers – they’ve also been keen to borrow and perpetuate that wealth, too.
Indeed, with interest rates having been held at record lows (until very recently), there has been a boom in borrowing these past few years, from residential mortgages to commercial investor loans and personal loans as well.
The most recent figures from the ABS show that a whopping $2.18 billion of personal finance loans were written in April 2022 – near record highs. In fact, ever since the COVID-19 pandemic began, there has been a steady incline in demand for personal loans more generally.
Speaking to The Adviser about the trend towards personal loans, Wisr’s chief commercial officer & head of broker, Peter Beaumont, explained that one of the primary reasons borrowers were turning to personal loans was that it was “cheap”, with rates around 6 per cent.
When compared to credit card rates, or pulling cash from offsets, or even drawing down on the equity of your home, the personal loan market has been an attractive way for borrowers to get funds when they need things – and quickly.
With Australians forced to head online and transact digitally, many borrowers moved to online lenders for solutions too, with Wisr and other non-bank lenders seeing an uplift in borrowers flocking to them for personal loans, taking away market share from some of the more traditional lenders.
The personal lender’s CCO and head of brokers noted that there had been several key trends that emerged over the past two years, ever since COVID-19 hit Australian shores.
While many borrowers previously took out personal loans for holidays or experiences, the pandemic made these activities nearly impossible – with borrowers instead staying on terra firma.
As such, he revealed that personal loan borrowings were mostly used for vehicles, or for home improvements.
“When I look at what has gone on in the last 24 months, we’ve seen an uplift in home improvement-related activity,” Mr Beaumont said, noting that since the last calendar year, there had been a 33 per cent increase in borrowers citing home improvement as a purpose for funds.
“No doubt this is related to people not taking overseas holidays but instead spending money on home improvements (making it impossible to get a tradie).
“We’ve also seen an uplift in unsecured vehicles and trailers, while debt consolidation volumes have, at the margin, just slipped a little.”
Mr Beaumont added that “gap finance” was also an increasingly frequent usage of personal loan funds, with home buyers (who have been purchasing property in record volumes) finding that they may have needed additional funds to complete property purchases.
“This has been an important loan purpose for Wisr as a lot of lenders don’t provide this. But it’s become very important for people who are trying to close property purchases,” he said.
Borrowers may be flocking back to personal loans in larger numbers now too, particularly as the shine starts to wear off the buy now, pay later (BNPL) market, which had been enjoying high popularity in recent years.
As the BNPL market starts to see bad debts increase, investor appetites waning, and regulators catching up to try and protect users, the tide may be turning against this kind of product provider.
Mr Beaumont commented: “I think, understandably, there is now concern around many aspects of that business.
“The transparency that you get with a personal loan is always beneficial to everyone concerned.
“In short, the buy now, pay later market has not been a direct threat to our business.
“I think, personally, the attractiveness of the personal loan market stands on its own merit. Always has, always will.”
Key trends to look out for
The Wisr CCO told The Adviser that, looking forward, he expects personal loans to remain an increasingly popular product – but that the top driving needs for a personal loan may shift in priority.
“As we look at the year ahead, I wouldn’t expect our spread of personal loan purposes to change too much. In other words, home improvements, vehicles and debt consolidation will still be the most popular purposes,” the non-bank lender CCO said.
However, as the economic environment shifts (amid rising cost-of-living pressures and a rising rate cycle), he added that debt consolidation could become a more commonplace reason for borrowers needing personal loans.
Mr Beaumont said: “The $64 question for the industry is: what is the price elasticity of demand for consumer credit as interest rates rise? Will credit activity decline, stay steady or even rise?
“I see that debt consolidation might become more common.
“We can also be sure that budgeting will become commonplace in everyone’s household, no matter who you are, so that you’re aware of where you are spending your money
“I’d like to think that that level of focus does bring more people to the broker community where they know they can get good, honest advice and get a broad view of what their options are, whether it’s refinancing your mortgage or consolidating some credit cards.
“In a rising interest rate environment, where there are cost pressures and consumers are optimising electricity bills, gas bills, and current debt arrangements, I think there will always be something brokers can assist their customers with.”
Top tips for brokers
For brokers looking to help borrowers access personal loans, Mr Beaumont provided some top tips to help them identify trends and needs.
“Seasonality is something to keep an eye on,” he said, noting that there is typically a spike in demand following Australia Day (when Australians may need to consolidate debt “and have some tidying up to do” after the festive period and school holidays), and at the end of financial year when there may be strong demand for vehicle finance to take advantage of car dealership sales.
“While there is some seasonality, the best thing brokers can do is to be very aware of their client database and be in contact with their customers on a regular basis.
“Clients need to see their brokers as a source of advice on what’s appropriate for them at any given time.
“Brokers are the modern-day relationship manager for their clients and the successful brokers we see behave in that manner.”
When asked about what brokers should know to have the most success at writing a Wisr personal loan specifically, Mr Beaumont said: “The simple tip is: you will save time and money by spending the time upfront in reading through the material we provide about credit policies in advance. That way, when you submit a loan, you should expect it to be approved first time.”
“BROKERS ARE THE MODERN-DAY RELATIONSHIP MANAGER FOR THEIR CLIENTS AND THE SUCCESSFUL BROKERS WE SEE BEHAVE IN THAT MANNER”
Peter Beaumont, chief commercial officer & head of broker, Wisr
A WORD FROM WISR
WE’RE TOTALLY committed to the broker channel and have been since we started back in 2015, when we listed.
Wisr was the first digital personal loan lender to build a business around strong relationships with brokers. That commitment hasn’t changed as we understand our success is wholly a function of our brokers’ success.
We aim to help brokers grow their position in the personal loan market, allowing Wisr to continue on our own spectacular growth path. We’ve enjoyed 23 quarters of growth and hit $1 billion of settlements, and a large chunk of that has come through our broker relationships, which we’re truly thankful for.
It will continue to be an important part of our origination efforts – arguably the most important – as we move forward.
Right now, our focus is on supporting and servicing the 10,000+ brokers around the nation who are part of the Wisr network, as well as welcoming new brokers to our network.
chief commercial officer & head of broker
Personal loans case study
Improving the financial position of a couple looking to buy property
The deal: A broker submitted personal loan applications for each of Mr C and Ms M, a de facto couple, who sought $43,000 and $50,000 of extra funds to consolidate personal debts and obtain extra funds for gap finance to buy property.
The issue: During the assessment, it was found neither Mr C nor Ms M had sufficient capacity to borrow the amounts applied for.
The solution: After discussion with the broker, Mr C and Ms M chose to borrow $42,000 as a joint loan to consolidate their personal debts.
The loan was approved at a low-interest rate, approximately 10 per cent lower than what Mr C might have received alone, based on Ms M’s credit score.
The outcome: This loan will put them both in a better financial position to organise their finances to buy property in the near future.