Banks Superceded - Canstar

This report is no longer current. Please refer to the CANSTAR website for the most recent star ratings report on this topic.

Report No. 11 January 2011

IN THIS REPORT

We research & rate: 341 personal & car loans from 77 institutions Credit unions, building societies beat the

banks

PERSONAL LOAN: RELIC OR RELEVENT?

ersonal debt has had a chequered history, the personal loan being one of the last useful remnants from an era

d where

debt was seen more as a moral condition and very much frowned upon. Prior to the 20th century usury, or

P e money-lending, caused public outrage so there were really only two methods of borrowing in those days ? personal

lending or illicit lending by loan sharks who charged eye-watering interest rates.

d Lending in those days was personal and local. It was carried on e between families or people you knew, from bartender to drinker,

brother to sister, neighbour to neighbour, shopkeeper to customer and

rc so on. You would pay the money back over time. If you didn't, you

risked being carted off to the debtors' prison where you would languish until your long-suffering family paid the debt off in full.

eAs consumer credit evolved to the dizzying heights it is today, the age-

old personal loan remains a core product. Ironically, its predominant

puse now is to consolidate debt for people who have too much money owing and need to get on top of the problem. Luckily for them, the

Su debtors' prison no longer exists.

HOW PERSONAL LOANS STACK UP

There's no doubt personal loans have survived a brontosaurus-like evolution that recently includes financial storms, swinging economic cycles and even threats of obliteration by competing products such as line of credit and credit cards. However, it must be in the genes because the personal loan is still here and more popular than ever.

It has distinct advantages over other methods of payment. With a personal loan for instance you can: Borrow as little as $500 through to your borrowing capacity (even $100,000) Repay in a nominated timeframe from 6 months to 10 years Relax in the certainty of knowing your exact repayment amounts and what rate of interest you pay Finally pay back your debt completely, even earlier than the contracted time if you wish

When comparing repayment options, such as credit cards and home loan redraw or line of credit facilities, the most important things to take into consideration are the loan purpose or amount of money needed and the loan period. The table below summarises the various pros and cons with each method of payment so you can align the strength and weaknesses of repayment methods with your own spending and repayment behavior.

YOUR GUIDE TO PRODUCT EXCELLENCE

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Features Loan amount Loan Duration Interest rate

Pros

Cons

Car Loan / Personal Loan

Medium size

Credit Card Small size

Home Loan redraw

Large size

Medium Medium

Short High

Long Low

Disciplined payment plan

Not as flexible as Credit Cards

Flexibility to use it when you need

If not disciplined, end up paying more

Readily available pre saved funds

May turn your short term debt into long term

AUSSIES OWE MORE

ver the past year we've seen a 5.27% increase

O d in the personal debt level of Australians. The ABS data shows our personal debt level now stands at $3.51 billion.

e The main reasons for this increase are car purchases d and debt consolidation, the latter posting a whopping

51.97% increase in the twelve months to October 2010.

e This indicates a concerted effort by many Australians to

get their existing debts under control in the wake of the

Superc global financial crisis.

(ABS data, Oct 2010)

The data also supports the fact that Australians are spending less, something retailers were very vocal about over Christmas. This has been at the expense of consumers concentrating on paying out debt.

On the other hand, personal finance for cars has jumped by 19.85%, as Australians trade in their clapped out cars for shiny, new models at never-to-be-repeated prices.

YOUR GUIDE TO PRODUCT EXCELLENCE

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RATE CONSTRAINT

Personal lending interest rates have remained consistent with the Reserve Bank cash rate movements. This is in contrast with home loans which sparked a public and political outcry when they were raised by considerably higher than the official rate rise. Before the rate drop in December 2008 the margin between the official cash rate and lending rate was 9.35%. Now that gap stands at 10.50%, suggesting institutions have made a concerted effort to keep personal loans margins higher after the global financial crisis.

ded (RBA Data, Nov 2010) rce NOT A BANK IN SIGHT

e ur comparison of personal loans at CANSTAR CANNEX proves that this is one product where the banks simply

cannot compete with the credit unions and building societies. We note there are 43 credit unions and building

O p societies offering one or more five star loans across the three categories we looked at ? car loans, personal

loans and secured personal loans. Our results show no banks in sight so when you're next in the market for a personal

u loan, check out our list of five star loans offered by a multitude of credit unions and building societies. Chances are one S of them is right near you.

GO GREEN AND SAVE

Credit unions and building societies are also to be congratulated for taking the lead in offering `green' loans for everyday products that are environmentally friendly. These personal loans are largely for the purchase of environmentally-friendly cars and home improvements. Cars which are designed specifically to give better fuel efficiency and emit less carbon pollutants, such as the Toyota Prius, Honda Jazz and Hyundai i20, will often attract discounts of up to 2% from existing secured car loan interest rates.

On the home front, discounted personal loans can also be used for the purchase and installation of solar panels, rainwater tanks and whitegoods with a higher energy rating. Our data shows that at least 13 credit unions and building societies are currently offering around 20 personal loans for green or environmental purposes. This incentive shows a welcome initiative by the financial institutions involved to help consumers make better choices for the earth's sake. Those interested in taking up a green loan are urged to investigate what the credit unions and building societies have to offer and note the products eligible for these loans.

YOUR GUIDE TO PRODUCT EXCELLENCE

3

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3 REASONS TO OPT FOR A PERSONAL LOAN

1. Safe Debt There are many situations where you need to spend money before you actually earn it ? renovations, a new car, holidays, the list is endless. The quickest and easiest way to access money in advance may well be a credit card, but a personal loan is much safer, particularly for those who don't trust the spending devil inside. Taking out a personal loan rather than a credit card is a pre-emptive strike against giving in to temptation. You will be forced to pay the money back regularly, and you won't be allowed to keep digging in for more.

2. Conscience Double Check The slightly longer approval process of a personal loan compared to a credit card can prove to be a blessing in disguise. Having to think about things such as how much money you really need for your personal loan, rather than grabbing at a high credit limit card and swiping it till your fingers are sore can buy you enough time to reconsider your motives and ensure you are actually spending with your head, not your heart. After all, whether it's a personal loan, a credit card or a

Superceded mortgage, you are spending someone else's money.

3. The Rate Issue When borrowing money, one of the first questions you should ask yourself is, `how much will I actually have to pay back?' When it comes to personal loans versus credit cards, in most cases you will find a better answer when you look at a personal loan. Credit cards have a time and a place but when it comes to getting the lowest ongoing rate, personal loans will generally offer a cheaper product in the long run. Deals such as interest-free days, and zero-interest balance transfers may be great while they last, but with an estimated $3.5 billion in Australian credit card debt currently incurring interest (.au), searching for the best rate is well worth your while.

STAR RATINGS A SHORTLIST

CANSTAR CANNEX personal loan star ratings will help you easily compare the best five star loan for you. In compiling this comparison we evaluated a total of 341 personal loan products from 77 institutions. We drilled these numbers down into 51 secured personal loans, 92 unsecured personal loans and 262 car loans. Only the top 10% in each category were awarded five stars denoting outstanding value.

To check the methodology we used in our star ratings, see the document at the end of the results report below.

COPYRIGHT ? CANSTAR CANNEX Pty Ltd ABN 21 053 646 165, 2008. The recipient must not reproduce or transmit to third parties the whole or any part of this work, whether attributed to CANSTAR CANNEX or not, unless with prior written permission from CANSTAR CANNEX, which if provided, may be provided on conditions.

DISCLAIMER To the extent that any CANSTAR CANNEX data, ratings or commentary constitutes general advice, this advice has been prepared by CANSTAR CANNEX Pty Ltd ABN 21 053 646 165 AFSL 312804 and does not take into account your individual investment objectives, financial circumstances or needs. Information provided does not constitute financial, taxation or other professional advice and should not be relied upon as such. CANSTAR CANNEX recommends that, before you make any financial decision, you seek professional advice from a suitably qualified adviser. A Product Disclosure Statement relating to the product should also be obtained and considered before making any decision about whether to acquire the product. CANSTAR CANNEX acknowledges that past performance is not a reliable indicator of future performance. Please refer to CANSTAR CANNEX's FSG for more information at .au.

YOUR GUIDE TO PRODUCT EXCELLENCE

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personal loan star ratings

100% Loan A v a ila b le

U n s e c u re d

Text218:

Car Loans

Company

Product

Published Rate (%)

Rate Varies With Deposit

Loan Fees ($) Monthly Application

Loan Amount ($)

Min

Max

Loan Term

"outstanding value"

Australian Central CU Green Car Loan

8.42 to 9.99

$

$ 0.00 195.00 10000 1000000001 yr to 7 yrs $

Australian Central CU Discounted Personal Loan 8.92 to 10.49 $

$ 0.00 195.00 10000 100000001 yr to 10 yrs $

Coastline Credit Union Personal Loan Secured

7.64

$

$ 0.00 150.00

1000 100000000 variable $

Coastline Credit Union Car Loan Fixed New

9.55

$

$ 0.00 150.00 1500 100000 1 yr to 7 yrs $

Superceded Community First CU

Green Loan

7.65

$

Defence Force CU

New Car Loan

9.49 to 10.25

Greater Building Society New Car Loan

9.15

Holiday Coast CU

New Car Loan Variable

9.09

$

Illawarra CU NSW

Variable Rate Car Loan

9.95

$

Illawarra CU NSW

New Car Loan Sec BOS

9.60

$

Macarthur Credit Union Car Loan (New)

8.95

$

Macquarie Credit Union New Car Loan ................
................

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