Getting a car loan might soon get harder – here’s why
ASIC has turned its gaze towards bad car loan practices.
Poor sales tactics, excessive costs and a lack of proper checks from lenders have led many car loan borrowers to default on their loan within just 6 months.
Financial regulator ASIC conducted a review into the car loans industry after a spike in complaints. It found what it said were "some cracks".
So, if you were thinking of taking out a car loan in the future, you might find more scrutiny - but you'll also, hopefully, find a safer industry.
Already worried about car loan debt?
You may be able to refinance your car loan to a better rate.
What did the investigation show?
The results were concerning. They showed that almost half of all consumers who defaulted on their car loan, did so in the first 6 months.
Amongst borrowers who had their car repossessed, almost 90% still owed more than half of their original loan amount.
"These numbers raise questions about whether these consumers have been given loans they cannot afford to repay," said ASIC commissioner Alan Kirkland.
So how did it happen?
ASIC found a reliance on third party distributors like brokers and dealerships, with not enough oversight from the lenders themselves.
It also found there were huge variations in loan establishment costs, making loans more expensive than they needed to be. The review calls out instances of establishment fees as high as $9,000 on a $49,000 loan.
What can we expect now?
ASIC will deliver its full recommendations next year, but it's said there needs to be better training and oversight of lender distribution channels, and lenders also need stronger reviews over the products to make sure they're going to the right borrowers.
You might find that even before the official recommendations come out, lenders and their distribution partners will take a stricter approach to finance moving forward.
But this is a good thing. If you're genuinely in a position to take on car loan debt, this shouldn't affect you. If you're not, you don't want to be taking on debt you can't repay anyway.
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