Open banking and its impact on your personal loan application


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Australia’s banking industry recently introduced “open banking,” a new style of banking that gives customers control over their data.

Whether you’re looking for a new home loan, personal loan, or credit card – or looking to refinance – open banking should make it easier for you to find better deals between banks.

First of all, what is open banking?

Open banking gives Australian customers control over their banking information. It allows you to ask your current bank to share your data, such as your transaction or savings account information with other banks and lenders whenever you want.

At the end of the day, you are able to tell where your data is going instead of your bank controlling it. This makes it easier for you to compare offers between banks and to switch to more competitive banking products if you wish.

However, open banking has not yet reached its peak. Here’s a breakdown:

  • From July 1, 2020 The Big Four customers may advise their banks to share their credit card, debit, deposit account, and transaction account data under Consumer Data Law (CDR).
  • From November 2020 Australian customers can ask banks to share their mortgage and personal loan data.
  • From February 2021 Customers other than the Big Four can request to share their product, account, and transaction data for mortgage products.
  • From July 2021 All Australian banks must provide access to customer product, account and transaction data for personal loans and other banking products.

How open banking impacts personal loan applications

When you approach a personal lender outside of your current bank, it’s likely that they’ll want to see more than just your credit report.

Previously, customers could be required to provide potential lenders with their bank login details, allowing them to view items such as transaction history.

Mozo’s silver expert Peter Marshall said it was a concern for many Australian consumers. He says open banking is a safer option.

“I think the biggest advantage [of open banking] is the issue of security, ”says Marshall. “More and more lenders want to check your bank account to see your transactions and verify that you are getting paid what you say you get paid, and that you don’t have large regular expenses that you may not have mentioned. on your app. ”

He explains that it’s about lenders being able to do better due diligence on your request without potentially compromising your bank credentials.

Will the open bank determine the interest rate I receive?

With the growing popularity of risk-based pricing and personalized interest rates among Australian lenders, open banking offers a clearer picture.

“Risk-based pricing can be as simple as looking at your credit score, but it can also involve other factors such as your spending habits that would be more evident in giving someone full access to credit. ‘history of your transactions,’ says Marshall.

But these ratings are not about lenders who name you and shame you for spending too much on online shopping. Rather, it looks at your big picture.

“This helps the bank make a more informed assessment of your living expenses, rather than reporting specific transactions,” says Marshall.

Audrey Neale, digital marketing manager at online personal lender Wisr, says the company’s risk-based pricing model takes into account several factors, including credit score.

“Wisr’s credit assessment process establishes a credit risk profile for each applicant. The credit risk profile is used to determine the tranche allocated to the applicant and the proposed interest rate, ”she explains.

“If you’ve been financially demure and have a good credit rating, it can pay off at a great rate. If you have a lower credit score and meet our loan criteria, you will still have a fair deal and will not benefit from any prepayment or current exit charges.

Is open banking safe?

Essentially, open banking is designed to give you control over your banking data, so you can select who has access and who does not.

“You always have to register, you always have to give very specific permissions, it’s very tightly controlled to minimize the risk of someone ending up with your information when they shouldn’t have it,” says Marshall.

“There is currently only one accredited third-party data recipient and they’ve been working on it from the start. They’ve done a lot of work to make sure people can trust him.

RELATED ARTICLE: How a risk-based personal loan could benefit you

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* DISCLAIMER: The Comparison Rate combines the interest rate, fees, and charges of the lender into one rate to show the true cost of a personal loan. The comparison rates displayed are calculated on the basis of a loan of $ 30,000 for a term of 5 years or a loan of $ 10,000 for a term of 3 years as indicated, on the basis of monthly repayments. principal and interest, on a secured basis for secured loans and on an unsecured basis for unsecured loans. This comparison rate applies only to the example (s) given. Different amounts and conditions will result in different compare rates. Costs such as redemption or prepayment charges, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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