A hot topic that has recently entered the finance conversation is the simplifying of rules around some areas of credit and lending. On 25 September 2020 Federal Treasurer, Josh Frydenberg, announced in a pre-budget speech, the Government's intention to reduce both the time and the cost that is involved in accessing credit by both businesses and consumers. These plans will apply to car loans and motor vehicle finance when they are passed into law. In a media statement, the Treasurer said this was part of the Government’s overall COVID-19 economic recovery plan as credit is critical to the economy.
In simple terms, businesses need credit to invest in the production and delivery of goods and services. Consumers need to buy those goods and services for the economy to work. In the case of purchasing goods such as cars, both businesses and consumers usually need a loan or business car loan for the purchase. When credit is difficult to access, consumers and businesses may have trouble getting the loans they require and may not be in a position to make their purchases. So the whole economy slows down. By making credit easier to access, the theory is, that consumers get credit to buy goods and that it will boost the economy and most importantly, create jobs.
The Treasurer stated that removing the unnecessary barriers currently involved in accessing credit will allow businesses more opportunities to access investment finance. This may include finance for assets such as cars and allow consumers to spend and purchase cars. The overall intention is to improve the flow of credit from banks and lenders to consumers and businesses.
We’ve unpacked the proposed changes that relate to car finance for you to better understand the scenario. But note – these are proposed changes and have not yet been passed into law. The Treasurer said he hoped the changes would come into effect on 1 April 2021. But there is a way to go yet.
Outline of the Proposed Changes
Currently, credit licensees such as Jade Car Loans and banks and finance companies must comply with the ASIC regulations about extending loans to consumers. For full details of our obligations, we refer you to an article in our library on ASIC regulations.
Banks must also comply with regulations as set out by APRA – Australian Prudential Regulatory Authority. It is seen that there is duplicity across the regulations and the approach very much places the responsibility on the lender to ensure that the loan being offered is suitable to the borrower.
Currently, many consider that some lenders are taking too long to approve loans, especially in the home mortgage area, and questioning ‘every’ expense time on loan applications.
While the full details of the changes have not been released, there is an overriding and major shift in perspective about responsibility.
Under the proposed changes, the responsibility shifts from the lender to greater responsibility placed on the borrower. One of the key reforms is that lenders can rely on the information that the borrower has provided, potentially using tools like a business car loan calculator. This simplifies the loan application process, making credit easier and faster to access.
There would still be regulations that lenders and credit licensees such as Jade Car Loans will need to adhere to and consumer protections will be in place.
To review the full details of the proposal.
What the Proposed Changes Mean For Your Car Loan
- The changes are not planned to come into effect until 1 April 2021.
- As the changes apply to new loan applications, those with existing car loans through Jade or other lenders, will not be impacted by the changes.
- If you have a car loan application currently being processed, these changes will not affect that application.
- If the changes are passed into law and you apply for a car loan after that time that is after April 2021, the application process may be faster and easier than currently applies.
Timing
The changes as announced by the Treasurer are to be presented to Parliament in the Federal Budget brought down on 6 October 2020. Under normal circumstances, the annual Federal Budget is presented in May each year. However, due to the impact of the coronavirus pandemic, it was decided to defer the budget to October.
Regarding the simpler credit changes, especially concerning low doc car loans, the Government has stated that it will first publicly consult with the stakeholders in the sector before they finalise the details of the legislation. Once legislation is drafted, it goes to the houses of Parliament to be passed into law. Very often, Governments need to negotiate with the cross-benches to have their laws approved, and this sometimes results in changes being made.
As some groups have expressed concerns over the proposed changes, especially in relation to No doc car loans, we will need to follow the process closely and wait to see the details and shape of the final laws when the legislation is passed.
Sourcing a Car Loan NOW
If you’re in the market for motor vehicle finance or a consumer car loan now, be assured that while we adhere to our obligations under the ASIC Responsible Lender Guidelines, Jade Car Loans provides prompt and timely service in processing car loan applications.
Your consultant can provide a quick quote and on acceptance of that quote, fast approvals and prompt settlement.
To discuss the proposed changes to car loans or receive a quote on a car loan contact Jade Car Loans at 1300 000 003
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