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It’s no secret that the lending criteria for the mainstream banks have tightened. Customers who would have qualified for a loan as recently as a few months ago are now being turned away. But this doesn’t mean that all hope for a solution is lost.
This group of near-prime customers presents a valuable opportunity for brokers because chances are, their loan can be readily serviced by a non-bank. So, how can a broker recognise a near-prime customer and place their loan with the right lender?
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What do near-prime customers look like?
While near-prime customers come from all walks of life, we have noticed a few trends in terms of what these customers typically look like.
They tend to be over 35 and are either married or in a de facto relationship.
They generally have children and already own their own home.
Somewhat surprisingly, there are a number of PAYG borrowers with a clear credit history who would have previously been assumed to qualify for a loan from the mainstream lenders but have now been rejected.
Self-employed customers are another large segment of the near-prime market.
There are all types of self-employed borrowers, from small business owners to freelancers to directors of multimillion-dollar companies. This segment is reflected in recent findings about Australia’s workforce, with almost 17 per cent now self-employed.
Additionally, according to recent figures from the ABS, there are now 2.24 million actively trading businesses, with annual growth of 3.1 per cent in 2016–17 primarily being driven by non-employing businesses or independent contractors.
What are they looking for?
Near-prime customers are often looking to refinance, consolidate numerous debts and utilise a line of credit as a cheap overdraft facility.
They tend to require extra cash to inject into their business or renovate their homes.
Alternatively, near-prime customers are looking to increase their investment portfolio, perhaps purchasing their third or fourth property, and no longer qualify for the same loans that they have for their current properties.
Why have they been declined by the banks?
The reasons as to why these customers get rejected by the big banks vary. Some may have a handful of minor defaults because of a few late payments on their phone, energy or water bills.
Those who don’t have any defaults or arrears could still be at risk of being declined by the credit scorecards of the mainstream banks. These same lenders don’t have solutions for self-employed customers who haven’t completed their last two years’ tax returns, and wish to use an alt-doc loan and verify their income using bank statements, BAS or an accountants letter. However, non-banks, like Bluestone, have an alt-doc solution.
How can we help?
Unlike the big banks, non-banks often don’t have credit scorecards, which means every borrower is assessed based on their merits and individual circumstances. Bluestone disregards any defaults under $1,000 and supports borrowers who have short-term, casual and part-time employment.
Similarly, non-standard types of income are considered (e.g. overtime, Centrelink payments excluding new start) and business owners with business trading statements and BAS statements can qualify for a near-prime loan.
We understand that sometimes life gets in the way. Parents get busy and stressed, letting bills fall to the wayside. Small business owners miss credit card repayments because they’re focused on building their new brand. Family situations change, and suddenly pensions, like carer’s and widow’s pensions, become a new source of income.
At Bluestone, we understand that people just want to be understood and have someone to take their situation into consideration.
Brokers should embrace this growing part of the market and help them find solutions by becoming familiar with the near-prime products that Bluestone and other non-bank lenders provide.
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