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Australia now has the dubious honour of having more household debt than the country’s GDP – the highest private sector debt-to-GDP ratio ($2 trillion versus $1.6 trillion) in the world, according to the Federal Reserve.
With cooling housing markets and the continued mining downturn, now is the time for clients to get control of their debt. It’s also an opportunity for brokers to re-examine the products and services that can be used to support these clients.
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Our experience over January has shown that banks are tightening their personal loan criteria and, talking to our brokers, they are telling us that mortgage and asset lending is going through a similar trend. Therefore, in our view, the diversification focus of 2015 will continue, and looking at debt management to help clients shore up their financial future could be a key tenet of your business strategy in 2016.
Our team at PL Broker is up to date on the personal loan market and has helped a number of brokers and their clients take control of their debt in recent times. I’ve included a few examples to demonstrate the impact it has had on their finances.
Late last year, a young couple came to us as they were looking to start a family and wanted to get their finances in shape. They had several credit cards and were making minimum repayments, which they felt that they would be paying forever.
The clients were homeowners and both had excellent incomes, so we helped them consolidate $95,000 worth of debt through an unsecured loan at 14.69 per cent less than the interest charged on their credit cards. Since it was a variable rate, it enabled the clients to continue paying extra to the loan while they were in a position to do so.
The clients were thrilled, as it reduced their repayments by nearly $500 per month, plus they were able to continue paying extra each month and actually see the balance reduce. It also reduced the worry of a future reduction in income after the baby arrived.
Another client wanted to reduce his debt repayments to buy his first house. However, he had a total of $30,000 on five different credit cards and knew this wouldn’t look good on a mortgage application.
We arranged a consolidation loan over a five-year term at 10.9 per cent – much less than the credit card rates. The client was paying less per month in repayments, so he could add to his deposit savings, and had one manageable payment each month instead of several credit cards.
The last example is of a client who wanted to refinance his car loan to an unsecured loan, as he was trading in his car to buy a new car. He had $19,000 outstanding and the client got a rate of 4.8 per cent from our panel – half his previous secured rate.
These three loans show how you can help clients, add value to your relationship with them and efficiently earn a commission in the process. So whether it’s helping new clients prepare themselves to enter the house market or existing clients take control of their loans, debt management really is the name of the game in 2016.
