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How spending less on petrol could stop you from getting a loan - and why you should always pay with cash and not card

11 months ago 60

Australians who buy just $20 of petrol instead of completely filling up their car like they used to could risk being denied a loan from a bank.

Credit check company Experian translates tap-and-go transactions in real time for Australia's big banks so the online statement and the banking app shows where someone spent their money, rather than it just being a line of code.

With Australia in the grip of a cost of living crisis, Experian's head of innovation Jordan Harris said the banks could interpret a $20 petrol purchase as a sign someone was under financial stress and was cutting back.

'It's less around the litre capacity in the tank, it's more around behaviours,' he told Daily Mail Australia.

'If a consumer was previously always just filling the tank off, that typically doesn't look like a round number - that's $87.96 or maybe these days that's $150.96.'

Australians who buy just $20 of petrol instead of completely filling up their car like they used to could be making their bank suspicious of them (pictured is a Sydney service station)

With E10 unleaded now selling for $1.90 a litre, a petrol-powered Toyota HiLux with an 80-litre tank would now cost $151 to fill up.

'If someone goes from always filling the tank up - and that looks like non-round number transactions, and they start going to smaller, non-round number transactions, that can sometimes be a sign that that consumer is starting to budget a little more tightly and be a little more deliberate in how they're spending their money,' Mr Harris said.

'That can be, in many cases, an indication they might be starting to feel a bit of financial stress of a bit of pressure.'

Cash offers privacy 

But Mr Harris, who previously specialised in risk management at ANZ, admitted using cash to pay for everyday goods like petrol would stop the banks having a more detailed picture of your spending habits.

'If someone pays in cash, obviously there's no transaction for us to enrich and add extra meaning to,' he said.

'If someone is taking money out of the ATM and just spending it, obviously there's not a lot of insight, there's really no transactions for the bank to see beyond the ATM withdrawal.'

A new Reserve Bank report released on Monday showed 73 per cent of transactions for purchases of $10 or less are now done with a card.

Cash purchases made up just 16 per cent of in-person transactions in 2022, half the level of 2019, and just five per cent of consumers did all their in-person purchases with banknotes and coins.

Mr Harris said the banks would be less likely to raise red flags if a customer withdrew huge sums from an automatic teller machine.

'Not to my knowledge, no,' he said.

With Australia in the grip of a cost of living crisis, credit check group Experian's head of innovation Jordan Harris said the banks could interpret a $20 petrol purchase as a sign someone was under financial stress and was cutting back

Getting a loan, phone plan 

While changes in behaviour could indicate a bank needs to offer someone support, it could also be used to make a lender reconsider approving a loan for someone.

'Potentially, the banks may choose to use it that way,' Mr Harris said.

'They will use that information to help them make a decision on whether to approve or decline a loan.'

The likes of Telstra and Optus could also contact Experian to ask if a customer wanting a phone plan would be reliable.

'They might contact our credit bureau to access the credit reporting information we hold on that individual and that might include things like loans outstanding, credit enquiries, defaults,' Mr Harris said.

Credit cards 

Credit check companies like Experian and its competitors Illion and Equifax also provide banks and phone companies with a consumer's credit card limits and whether they had missed repayments. 

'If someone goes over the limit on their credit card, that's something the banks have traditionally used as a sign of stress,' Mr Harris said. 

'We'll have a limit of how much they owe - the credit card example, the limit is $10,000 and we might know that account is up to date or we might know it's two payments behind.

'But we won't know what the balance on that card is - a thousand dollars or $8,000 - which just know that limit of ten and the repayment status.'

But Mr Harris, who previously specialised in risk management at ANZ, admitted using cash to pay for everyday goods like petrol would stop the banks having a more detailed picture of your spending habits (pictured is a stock image)

Buy now, pay later 

Those who use buy now, pay later apps like Afterpay can also make a bank think that someone is struggling to pay their bills.

'It's not the fact that consumers might use buy now, pay later - that's a fairly widespread and normal practice,' Mr Harris said.

'So if you are suddenly using buy now, pay later services extensively - you know, seven, eight, nine, ten transactions a month - and previously you might have been using just a couple of times a month, that doesn't mean that you're necessarily doing anything wrong, but it could be an indication you're starting to feel a bit of financial stress.'

Signs of stress 

Experian has also revealed two-thirds of lending managers surveyed had already seen an increased risk of consumer defaults and hardship in the last six months.

Borrowers who took out a loan since 2019 are also three times more likely to default compared with someone who took out a mortgage in 2015.

Mr Harris said the survey of 75 finance risk leaders in Australia showed 'navigating through the current economic climate isn't easy'.

The Reserve Bank of Australia this month raised interest rates for the 13th time in 18 months, taking the cash rate to a 12-year high of 4.35 per cent.

Variable mortgage rates have surged by 69 per cent since May 2022, when the cash rate was still at a record low of 0.1 per cent.

The Experian survey revealed mortgages approved at the end of 2022 were missing repayments almost five times sooner than those started early 2021.

Australian Bureau of Statistics data released on Tuesday showed retail sales falling by 0.2 per cent in October, as turnover for clothing and footwear plunged by 1 per cent.

The annual retail growth pace of 1.2 per cent was the weakest since August 2021 when Sydney and Melbourne were in lockdown. 

ANZ economists Madeline Dunk and Adelaide Timbrell said retail sales were falling even though more than 400,000 overseas migrants moved to Australia in the year to September.

'That is despite elevated inflation and high population growth,' they said.

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