Personal Loan Back In Vogue For Floats

The Age

Monday May 11, 1998

JANELLE CARRIGAN

FRENZIED sharemarket float activity has coaxed personal loans out of the closet. While the more glamorous credit card has been the line-of-credit choice for most borrowers in the past few years, personal loans are making a comeback to fund share portfolios. As more household names like AMP and Telstra go public, many investors are borrowing to enter the sharemarket for the first time.

Phones have run hot in the past few weeks at Westpac branches as personal loan inquiries increase sharply. Kim Nicholas, Westpac's head of direct marketing, said it was no coincidence the bank was taking more calls as prospectus releases from AMP and NSW TAB landed on customers' doorsteps. While AMP policy holders are on the receiving end of free shares in the company, investors in other floats will be digging around for a spare $5000 to $10,000. Said Nicholas: "A lot of customers will look to a credit card if it's a small amount, but for amounts between $5000 to $15,000, personal loans are ideal for that."

There's no escaping the convenience of credit cards, but ANZ's latest assault on personal loan rates is putting the squeeze on plastic. Recently slashing up to 3.5 per cent off fixed personal loan rates, the bank's upfront rates rival credit unions' personal loan deals.

ANZ's move is a concerted effort to bring personal loans back into the lending arena. Traditionally, personal loans helped fund the annual holiday or consolidated mounting bills. But in the past few years, the more flexible credit card has elbowed in on personal loans' turf. The cash may be instant but it does come at a price.

Interest rates on a standard credit card, where the balance is carried over each month instead of being paid off in full, sit between 11 and 17 per cent. Average rates sit around 14 per cent. Compare this to a personal loan where rates generally range between 9 and 17 per cent, with the average sitting around 13 per cent. For undisciplined borrowers, fixed personal loans demand set repayments, while the balance on a credit card can be strung out almost indefinitely.

ANZ's personal loan review is the first major move by a bank for some time to bring rates down to a more competitive level. The bank's manager of media relations, Paul Edwards, admitted home loans had been the star attraction when it came to lending. "Historically, home loan rates have been quick to move after Reserve Bank cuts, but personal loan rates have tended to be more sticky," he said.

This is great news for home owners struggling to pay off hefty mortgages. In the past few years rates have plummeted from 10.5 per cent to about 6.2 per cent, slicing off more than $85,000 in interest on a 25-year loan. Other borrowers, however, have rarely seen the benefit of official interest rate cuts.

Just as the home loan rate wars dramaticlly altered loan conditions and features, personal loans are also taking on more tricky features. It's now becoming harder for the unsuspecting to calculate just how much they are paying for credit. Take ANZ's new five-year secured personal loan rate. The upfront rate of 9.5 per cent is not the total cost of the loan. Add the $100 upfront fee and the ongoing annual fee of $100 and the rate effectively translates to 10.34 per cent.

Compare this to Colonial Bank's five-year fixed personal loan - at face value the upfront rate of 9.99 per cent is higher. While the loan establishment fee of $99 pushes the overall costs higher, with no annual fee the rate effectively translates to 10.16 per cent. In comparison, credit union personal loans generally carry little or no fees. Education Credit Union's personal loan tops the offers, with a 9 per cent rate and no fees.

For those shopping around for a few dollars before the next big float, other big players in the personal loan market - the National, Commonwealth and Westpac banks - confirmed they were not touching rates just yet.

UNSECURED PERSONAL LOANS
Institution                                  Product Name
 Interest Rate  (%)     Min Loan   Max Loan     Fees
Education Credit Union            Var rate personal loan                9
                    $8000        $35,000       None
ANZ Bank                                personal loan 1-5 yrs
9.5                        $5000         None           $100 entry, $100 annual
Colonial State Bank                  Fxd 5yr specific purpose           9.99
                  $3000         none           $99 entry
St George Bank                       Var rate personal loan              10.95
                    $3000         $25,000       none
Commonwealth Bank               7 yr fixed personal loan            12.7
               $2000          $20,000       none
Westpac                                  Personal loan fxd 3-5yr
12.99                     $4000          $20,000       none
NAB                                         Var rate personal loan
 13                          $5000         none            $100 entry
CREDIT CARDS -- CARRY A BALANCE
Institution                                  Product Name
      Rate (%)            Annual fee
Education Credit Union             Redicard to access overdraft    11.3
             None
Endeavour Credit Union           Visa to access overdraft           11.8
              $24
ANZ Bank                                 Low interest Mastercard           12.5
                     $22
Metway Bank                           Visa
      12.5                      None
Commonwealth Bank               Visa fee free                               14
                      None
Westpac                                   Mastercard fee free
14                        None
NAB                                          Bank Card
         14.4                     None
Source: MoneyLine

© 1998 The Age

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