| Feb 27, 2015
Many homeowners and property investors are taking advantage of low interest rates to re-finance, so why shouldn’t people with personal loans and credit cards be doing the same?
The balance of power has tilted back towards borrowers and consumers, and now is the best time in decades to beat the banks at their own game, and pay as little interest as possible.
And less money for the banks is more money for you and your family to spend on the good things in life, such as holidays and entertainment.
With the changing financial services landscape, the banks are being challenged by new market entrants, such as Peer-to-Peer lenders with a completely different way of doing business.
In this environment, it’s possible to beat the banks not just by reducing the amount of interest you pay to them, but not to use a bank at all for key financial services.
Pssst. Have you heard of Peer-to-peer lending?
With the standard credit card rate at the end of 2014 hovering around 19.75% according to the RBA, non-bank lenders - or peer-to-peer lenders (P2PL) such as SocietyOne – are offering a more competitive rate (at the time of publishing, SocietyOne provides fixed unsecured personal loans from 9.95% p.a.).
While Australia's big four banks are enjoy healthy margins, they also have to consider costs, such as national branches, temperamental IT systems and big marketing campaigns. However, new financial technology companies have smaller overheads and can offer a competitive alternative using cutting-edge innovation.
And it's not just about getting a good rate. Following great success in the US and UK, peer-to-peer lending is gaining popularity in Australia because:
- It brings investors and borrowers together in a secure, online financial marketplace where their identity is protected.
- Rates are based on personal credit history - the better your credit, the lower the rate.- Personal loan rates can be up to 4% lower
than the average rates of the major banks.- It's an online application with a fast approval process – with funding within 72 hours.
So instead of paying the minimum credit card amount every month, an unsecured personal loan can consolidate that expensive card debt into one easy-manage debt facility at a lower interest rate.Already have a personal loan? Then switch to a better rate
If you’ve already taken up a personal loan, particularly at a time when rates were significantly higher, you may benefit from switching to a new loan.
Your existing loan may have an early exit penalty fee for repaying the loan in full before the agreed term. But in many cases these exit fees are more than compensated by the savings delivered by locking in lower rates.
Contact your credit provider to find out how much the penalty might be, and then compare market rates with other lenders.There are better options available
At the most basic of all criteria – price – comparison sites like RateCity or Infochoice will show that many of the smaller lenders are offering rates well below those of the major banks.
While mortgage rates will always be a highly competitive segment - the major banks continue to offer personal loan interest rates well in the double digits.
New to bank borrowers also face a tortuous application and approval process, sometimes requiring a personal visit to a branch, confusing and time-consuming paperwork and then a lengthy wait for a decision and funding.
This makes other options such as going directly to investors through peer-to-peer lending so much more appealing.
Beat the banks
Being aware of these alternatives and evaluating their value proposition is a smart move for people looking for a better deal and to save time and money with their personal finance.
In a more competitive market, being aware of the new choices is one way to beat the banks in 2015.