Where do you go if you want to take out a personal loan? For the vast majority of Australians, the answer is a bank. Specifically, one of the ‘Big Four’ banks. Between them, all four enjoy 85% – 90% market share of the personal loan marketplace, which is an industry worth an annual $26 billion in Australia.
The reasons why people go to these banks are understandable. If you bank with one of the Big Four, for example, or you have your mortgage with them, you have that sense of familiarity with them and may see them as your best or even your only option.
Yet, increasing number of Australian consumers are starting to shop around when it comes to seeking options for lending. You’re not duty bound to use your existing banking provider when seeking out a personal loan, nor will your existing bank necessarily be able to offer you the best deal anyway. What are the current processes banks follow when you apply for a personal loan, and what are the alternative options for consumer lending?
Current Reality: Dealing with the Big Banks
The definition of bank lending is simple enough. It is merely the process of being given a sum of money that you need to repay, inclusive of interest and charges, over an agreed period. Specific terms and conditions, including repayment frequency, interest and charges, and other factors, will change depending on the lender, your individual circumstances and credit score, and the perceived risk you present as a borrower.
How the Big Banks Deal with Personal Loans
One of the reasons you don’t often see or hear from the big banks when it comes to personal loans is because they are not their primary product. They’re more interested in selling mortgages to individuals and couples, or selling expensive business banking packages and additional add-on products. Personal loans are very much a secondary product for these banks. Unfortunately, the lack of focus they put on personal loans as a product shines through when we start to consider their process and how they deal with your application for a personal loan.
Applying for Your Personal Loan at a Big Bank
What happens when you apply for your personal loan at a big bank?
If this, particularly the final two points, sounds like an energy sapping, soul destroying experience, then rest assured you’re not the only one who thinks that way!
If you took out a mortgage or have another product with the bank in many cases you will have your own advisor, the same person that you speak to each time you need to contact them. Why shouldn’t this be the case when it comes to personal loans?
This is a question many Australians are asking, along with many other factors they consider when shopping around for personal loans.
What are Australians Looking for in a Personal Loan?
Numerous factors can drive the decision making process when choosing a personal loan. How important each individual factor is will differ between from consumer to consumer, but what are the main considerations that might make you seek an alternative to a bank for a personal loan?
A Competitive Interest Rate
The interest rate drives the overall cost of the loan, so will often be the most important factor when choosing a personal loan. One of the big frustrations consumers experience when shopping for personal loans – and finance or credit products in general – is that they may see a low interest rate advertised when in reality very few customers actually get that rate.
This is common with personal loans and with credit cards. Consumers see an attractive rate advertised, for example 9.95%, but in reality their actual rate may be as high as 29.95% or even 39.95%.
Customers want competitive interest rates, with transparency, or at least an advertised rate somewhere close to the rate they’ll actually get!
NOW FINANCE competitive rates
Different Loan Products
The banks may offer “personal loans” as one product, but increasingly consumers are seeking out loans that are provided with their specific need in mind. The value in providers doing this is demonstrated in the range of personal loans NOW FINANCE issues. Our most popular loan is a car finance loan (27.3% of NOW FINANCE loans issued are for car finance) followed by medical expenses loans (19.8%) and home improvement loans (13.9%).
The full breakdown of different loan products available from NOW FINANCE and their popularity is demonstrated in the table and chart below.
The ability to choose a specific type of loan helps consumers to feel like the product is tailored to them, rather than just being a general “personal loan” to be used for any purpose.
A Quick Decision and Process
Nobody likes to be kept waiting. Especially so if you’re waiting for a personal loan decision because you want to make a life changing, aspirational purchase. Imagine seeing the car you want and then having to wait a week for a decision on a loan to help you buy it, particularly if you had to complete a long and onerous application even to reach that stage.
Consumers are looking for a quick, hassle free means of applying for personal loans and want a decision as soon as possible.
At NOW FINANCE our application takes no more than 10 minutes and you could have a decision within 24 hours.
While the overall cost of borrowing may be the headline for most people, customer service is still important, and it starts from the moment you apply. With the big banks you’re just a number, you go through the system, are assessed by a computer, and get your decision. If you take a loan from the bank we’ve already outlined the process, you’ll go through whenever you need to speak to someone.
At NOW FINANCE all our applications are assessed by a person, and successful applicants are assigned a personal account manager who will always be the person they speak to when they call.
What are the Alternatives to the Big Banks?
With so many factors to consider, it leaves you with plenty of options when it comes to shopping around, but do you know the alternatives available if you’re looking away from the big banks for a personal loan?
The smaller banks in Australia are one option. However, personal loans are usually even less of a focus for these banks than the bigger banks, so it is unlikely you’ll see an improvement in your experience of dealing with them. The same is true for larger finance groups that offer banking as one of their products.
Personal Loan or General Finance Brokers
Whether you opt to use a personal loan broker or a broker that offers a range of finance products, such as mortgages and different types of insurance on top of loans, this can be a useful option, particularly if you don’t have too much time to shop around yourself.
Using a broker allows you to access a wide variety of lenders and different deals in a short space of time. Having to pay any broker fees doesn’t necessarily mean you’ll end up paying more overall, as lenders may be providing promotional rates and deals to brokers to sell on their behalf, though you should always check the breakdown of fees you will pay within your overall loan cost.
Peer to Peer Lending
The popularity of peer to peer lending is growing, both as an option for borrowers but also for individuals looking to invest without using a bank.
Peer to peer lending matches lenders directly to borrowers. Although you will apply for a loan through a peer to peer lending company, you are actually borrowing the money from an individual who has made their own money available for lending.
The big disadvantage peer to peer lenders have in the overall marketplace is they are reliant on continuous investment from individual lenders to ensure they still have a product to offer. If your peer to peer lender ever got into difficulty this could impact on your situation with regard to your loan, so you should think carefully before choosing this option.
How do the Alternatives to the Banks Look Using Net Promoter Score?
Net Promoter Score is a measure of customer experience and a great indicator of the experience you can expect when you choose a lender to apply for a personal loan. It is calculated by subtracting the number of ‘detractors’ a brand has from the number of ‘promoters’ it has. More information about Net Promoter score is available here. The below table highlights how the big banks compare with other finance companies in terms of Net Promoter Score.
Why Select an Alternative Lender?
It is clear from what we have seen that big bank lending is not for everyone, even if you already have your bank account or your mortgage with one of the big four.
We have already looked at the factors you might want to consider when searching for alternatives to the big banks for a personal loan. On top of this, think about the added benefits, when you ultimately apply for a personal loan with NOW FINANCE:
- Much easier to deal with; a hassle free experience from start to finish
- A better level of customer service that put personal loans at the heart of their business and consider them an important product, and thus you as an important customer. With NOW FINANCE, we treat you as a person and not as a number, and you’ll speak with the same person – your personal account manager – each time you contact us.
- Reduced application and processing times; get your decision and the money in the bank quicker
- More transparency and flexibility around interest rates. With NOW FINANCE we tell you what your interest rate will be before you even apply.
The Alternatives to Bank Lending are There
If you’re looking for a personal loan and don’t want to deal with the banks, you have plenty of options!
Join thousands of NOW FINANCE customers who choose to enjoy the benefits of borrowing from us, and choose the personal loan tailored to your needs prior to applying. Call us on 1300 275 669 with any questions, or start your application here.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.