Buy now, declined later: Aussies denied loans due to untracked spending

Imagine finding the car of your dreams, only to realise the roadblock stopping you from getting the loan to finance it was the growing Buy Now Pay Later debt you’ve been building over the past year. 

It happens more than you may think. 

Findings from Jacaranda Finance’s Money Talks Survey revealed that over 60% of people either don’t track their discretionary spending or do so inconsistently, while around a third of respondents closely and consistently track their day-to-day expenses. The survey discovered that 35% of respondents believed their spending habits had affected their chances of being approved for a personal or car loan.

More than a third said they were surprised when a lender asked them about their discretionary spending.

So, what is discretionary spending and how can it affect your loan application? 

It’s all those extra things you indulge in and may not even notice. It’s the things you ‘want’, not the things you ‘need’. This includes dining out, entertainment such as regular trips to the movies or concerts, shopping, weekends away, and more. 

Some might even say that it’s the fun stuff we treat ourselves to.  

But when you apply for a loan, a lender will look at this type of spending to ensure it’s in proportion to your income. They will also look at it in comparison to your existing committed spending, which can include things like private school fees, daycare fees or other locked-in day-to-day expenses.   

For instance, if you love sipping lattes and shopping a lot more than you love paying down your credit card, your discretionary spending may be considered a red flag to lenders. 

Other key findings from the Money Talks Survey included: 

• Nearly three in five (59.04%) of homeowners said they occasionally track their discretionary spending on things like entertainment and shopping but not regularly – this was less (53.3%) for non-homeowners. 
• Of the homeowners surveyed, 38.55% said they had been asked about their spending habits when applying for a personal or car loan, with just 9.64% feeling their spending habits impacted their approval. 
• Of the non-homeowners surveyed, 34.72% said they had been asked about their spending habits when applying for a personal or car loan and their responses impacted their approval. A larger percentage (47.92%) said they had been asked but felt their responses did not impact on their approval.

So, how can you get on top of your discretionary spending before applying for a loan? Here are five tips: 

• Audit yourself: Firstly, take a close look at your itemised accounts over a three-month period and be honest with yourself when calculating your discretionary spending. How much are all those extras per month really costing you? Calculate how much that is in comparison to your own income. Do this at least three months in advance of applying for a loan and make some changes to your spending habits before you apply. 

• Streamline your streaming: Don’t forget about your subscriptions and audit those too. Check Netflix, Stan, Disney+, Prime, and apps on your phone – are you really using them all? What about your new AI subscription? By cutting back on some of these you may be able to trim quite a bit off your discretionary spending. 

• Remember the memberships: Gym memberships that are not being properly utilised, personal training sessions, or any other regular memberships that may be silently draining your accounts monthly might need to be reconsidered. 

• Eating out: It’s too easy these days to just order Uber Eats or duck through the drive-thru, but it’s surprising how quickly eating out can eat into your budget. Bank statements don’t hide the regular Macca’s run or night out.  

• Buy Now, Pay Later (BNPL): AfterPay and ZipPay are often used for buying discretionary items and are considered an existing debt. 

• Committed expenses: While looking at your discretionary spending, keep an eye on your committed expenses such as school and daycare fees. A lender will consider both types of expenses.

And here are some general tips to improve your loan application 

• Track and trim your discretionary spending at least three months before applying. 
• Pay off your credit card debts and take care of those BNPL balances. 
• Avoid overdrafts and maintain a positive bank balance. 
• Be honest in your application – an ethical lender will check your bank transactions. 
• Avoid new debts or large purchases before your application.
  
  

Money Talks: As part of Jacaranda Finance’s ongoing commitment to guide people towards a better financial future, we recently ran the Money Talks survey to get a stronger understanding of the spending and lending habits of everyday Australians. 

From an unwillingness to cut back on subscription services to how people opt to fund their upcoming home renovations, the survey results provide key insights. So, does removing your Netflix subscription get someone closer to obtaining a loan? 

Discover these insights and more through our Money Talks survey results!