What do Netflix, Uber Eats, and compulsive online clothes shopping have in common?
Apart from draining your bank account, this discretionary spending can impact your ability to get approval for a personal or car loan.
Yet, a new survey reveals many Australians are surprised when asked about their discretionary spending during the loan application process – and few regularly track their entertainment, subscription and shopping expenditure.
The findings of Jacaranda Finance’s Money Talks Survey shone a light on the public’s understanding of how personal and car finance works, including the influence of spending habits on application outcomes.
Almost 500 people across the country participated in the survey which posed a series of questions around personal and car loans, interest rates and credit scores.
Key findings included:
Your spending habits are just one of many factors that impact your chances of being approved for a personal or car loan.
While individual lenders differ in how they assess applications, there are various steps you can take to increase the likelihood you will receive approval.
Before applying, see where you can reduce your spending. This means resisting the urge to order Uber Eats or filling up your shopping cart at your favourite online store and cancelling any unnecessary subscriptions. Also avoid using financial products like Buy Now, Pay Later (BNPL) products such as Afterpay or Zip Pay and payday loans. Ideally, make a considered effort to reduce your discretionary spending at least three months before applying for a loan.
Lenders assess your ability to repay a loan by examining your existing debt commitments. Any credit card or loan repayments will reduce the amount of income you have to service an additional loan. To improve your debt-to-income ratio – and ultimately your chances of approval – it's a good idea to pay off any debts you have. It may also be worth considering a debt consolidation loan, which can combine multiple existing debts into a single more manageable repayment.
How you treat your debts is also important. Are you making repayments for credit cards and any other loans on time? It’s a good idea to set up automated repayments so that you are not getting reminders of missed payments. Lenders want to see that you make repayments on time – if you’ve shown respect for previous debts then this will help your chances of approval and also help boost your credit score. Even when serviceability is not an issue, you could get denied a loan because of your behaviour.
Most lenders have rules around how they scrutinise gambling-related transactions. Gambling such as lotteries, sports betting and poker machines can impact your chances of being approved for a loan, even in cases when you know your limits. Certain gambling transactions, regardless of their size, are immediately flagged as a risk. If gambling is a problem for you, you can call Gambler’s Helpline on 1800 858 858.
Saving regularly helps show that you can manage money responsibly. Setting aside money that you’ve earned yourself weekly, fortnightly or even monthly, demonstrates to lenders that you will likely be capable of managing loan repayments. A solid savings record is particularly beneficial when you are applying for larger loans, such as a car loan.
Again, lenders want to be confident that you can manage your repayments, so it’s important to have consistent income from a steady job.
It’s never a good idea to lie or intentionally leave out key details on loan applications. Fudging your income figures, not disclosing your existing debts, or not being honest about other key bits of information is extremely risky. Remember, lenders will verify the information you submit, and any discrepancies can lead to rejection.
Your credit score is a critical number in determining lenders and loan terms. Essentially, it is a score given to you based on your borrowing history from credit providers and indicates your trustworthiness and reliability. If you know your credit score, then you can steer clear of loans you are unlikely to qualify for. You can check your credit score for free via our Better Credit app.
As strange as it may sound, discretionary spending generally isn’t the costliest barrier when it comes to getting approved for a personal or car loan.
The reality is that lenders view dining out, streaming subscriptions and even gym memberships as flexible as they can all be cancelled. What hurts more is spending that isn't flexible, such as committed school and daycare fees which have a great impact on loan serviceability.
Discretionary spending can quickly add up but can be easily cut back. For instance, you can instantly save around $100 a month by culling a few subscriptions or even more if you ditch your weekly Uber Eats order. Ultimately, lenders want to know that you not only can afford a loan but have a buffer to fall back on.
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 you closer to obtaining a loan?
Discover these insights and more through our Money Talks survey results!
$3,000 - $25,000
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