Tips for managing your money and getting that loan approval
Written on the 1 October 2019 by Paul Evans - Fox Finance Group
Cash is King, or so the old saying goes. This phrase has been instilled into the minds of many Australians (and many across the World) for decades now, but as economies and technology change, is this phrase even still relevant?
The answer to this is fraught with danger as it can vary depending on the scenario you are applying it to. The phrase "Cash is King" generally refers to negotiation, in that if you are negotiating with "cash" you would be perceived to be in a better bargaining position as you have the funds ready to go and can be handed over on the spot or in a short timeframe. This can give the seller more motivation to reduce the price as whatever he or she is selling can be moved quicker. This can certainly be true for "Private Sales" where for example a vehicle is involved.
Why are your spending habits important?
In these modern times where the most of our spending is done with plastic, (namely debit cards) a lot of lenders will now want to see some evidence of spending habits, as well as getting an understanding of your day to day money management and budgeting before approving your loan.
The rules around account clearing and full cash withdrawals in particular are having more of an impact on a Lenders decision to give someone a loan or not, and we are finding that some Lenders are giving less leeway to their ruling on this right now.
Being able to show a lender that you know how to manage your "cash" can give the lender some comfort that you are likely to be able to budget your personal cash flow and meet their repayments. Make sense? If you are one of the many Australians that like to carry their cash around with them or you are withdrawing your hard-earned income from your account as soon as it hits your bank account, this can start working against you. Why?
In the background, Lenders all have a "tipping point" where the banks and lenders would prefer to see your income remain in your bank to account for bills and possibly more importantly; potential future loan repayments. The general consensus of the cash withdrawal "tipping point" is currently around 80%, which means that they like to see that you are keeping around 80% of your pay in your account for bill payments to be taken directly from your account. This gives the Lenders a better idea of what you are spending your money on to live. If you withdraw all of your money out in cash, their ability to assess your spending and living expenses is reduced.
Raising a lender's suspicions
For a lender it can also raise suspicion around the possibility of the customer having an "undisclosed debt". This is whereby the customer may have other debts that they are paying off with cash in order to avoid evidence of other debts in their banking transactions. I know this might sound a little bit big brother, and it may seem like an assumption being made by the banks, but when a bank or lender can only make a judgement on an individual person purely based on the information they are provided with, assumptions will need to be made in an industry built on taking risk.
As a Lending Specialist, I deal with this every day. It is effectively my job to try and remove those assumptions from the Lender's minds and provide them with the most accurate and concise information so they can make a fast and informed decision about your loan right now. I know what they want and what each Lender's appetite is for each market segment.
What are we passionate about?
We are passionate about helping our customers understand what good personal cashflow management looks like from a lender's perspective to give you, the borrower, the best chance of having your loan approved the first time.So, in conclusion; yes, cash is still a valuable commodity in todays' economy, but it pays to be smart about how you move your cash around. Think about how easy it would be for you to show via your bank statement transactions how you are managing your money effectively, it may be the difference between getting the loan approval you want or not.
If you have more questions, get it touch with one of our Lending Specialists today for obligation free chat about your scenario.
Check out our other articles on many different finance related subjects by clicking here. Our goal is to build more knowledge and understanding of our industry so that YOU can benefit by getting the RIGHT loan, first time.
Learn more about the Author Paul Evans.
Author: Paul Evans - Fox Finance Group
About: Lending Specialist