Car loans | Banking Conduct Issues And How To Fix Them

When it comes to applying for an asset finance loan one of the key requirements lenders take into consideration in determining your creditworthiness is banking conduct. But what is responsible banking conduct and how do you ensure your banking conduct will meet the lenders responsible lending practices? 

In this post, we explore banking conduct and share with you our top tips for ensuring your banking conduct will meet lender requirements.  

What is banking conduct and why does it matter?

Banking conduct is basically how you manage your money through your bank account. In short, banking, conduct refers to your behaviour with regard to deposits and withdrawals, overdraws, defaults, payment dishonours and spending patterns on things like gambling.

For lenders, your banking conduct is a strong indicator of your true financial profile and is a key factor in granting finance approval. 

While proof of income in the form of payslips or BAS statements are important, of equal importance is your banking conduct. Why?

Lenders are bound by responsible lending practices and have a legal and moral obligation to only lend to persons who can reasonably meet their financial obligations under the terms of the loan.  To determine a borrowers suitability for a loan, lenders will assess your banking history, but what are they actually looking for?

7 things lenders consider when assessing your banking conduct

1. Deposits and withdrawals

The first criteria in establishing whether you, as the borrower, demonstrate good banking conduct is assessing your general banking behaviour. In particular, lenders are interested in your deposit and withdrawal history. 

2. Disclosed Financial commitments

Firstly lenders look to confirm that your disclosed financial commitments match those stated on your loan application. These include regular weekly, fortnightly or monthly cash outflows, usually of a consistent amount, for things like mortgages or rent, telco accounts and other subscriptions. 

3. Undisclosed Financial commitments

At the same time lenders are also looking to ensure that you don't have other regular financial commitments that you have failed to disclose in your loan application. 

Be warned that failing to disclose the full extent of your current financial liabilities and/or providing an incomplete financial history to the lender could result in a poor character judgement which could affect the outcome of your finance enquiry.

Tip: Be honest about your current financial liabilities and outgoings on your loan application. If you lie the truth will be exposed either through the lender's credit agency check or analysis of your bank statements.

4. Account Draining

A big red flag for lenders is "account draining" or instantly withdrawing a large proportion of your income on the same day it is deposited by your employer. For lenders, this indicates that you are living paycheck to paycheck and therefore have little capacity to service more debt. 

Tip:  Don't drain your bank account on payday and try to retain some savings in your account. When lenders can see that you are able to save a little each week this helps them understand affordability.

5. Multiple Withdrawals and Gambling

Similarly, multiple or regular cash withdrawals at RSL clubs,  casinos and entertainment facilities and/or multiple payments to gambling sites indicate to lenders that you probably engage in regular gambling which they consider high-risk spending behaviour. 

Tip: If you love your gambling, whether that be sports betting or a bet on the horses, we highly recommend setting a weekly budget and making one deposit to your favourite gambling app. This will demonstrate to lenders that your gambling is a hobby, not a vice. 

6. Credit conduct -payday loans

Payday loans are considered a negative thing by lenders, they assume clients can't cover unexpected expenses or can't manage their budget and need to obtain short term expensive funding to get through. Obviously, there can be good reasons, but it is seen as an expensive alternative for those who can't get traditional funding.

Tip: Avoid payday loans at all costs. While every lender borrowing criteria differs and some will accept a payday loan, the majority see payday loans as a huge red flag as they indicate that you are already experiencing financial management issues that could impact your ability to service loan repayments if approved. 

7. Account Penalties

Another red flag for lenders is account penalties for things like overdrawn credit card and bank accounts, payment dishonour fees and overdrafts.

Once again the prevalence of these types of records on your bank statements indicates poor banking conduct. 

Tip: Ensure you have available funds to meet your obligations, set reminders for direct debits or even better set up automatic payments so you never miss a payment again. 

The takeaway

When it comes to getting finance approval your banking conduct is important. To increase your chances of getting approved follow our tips. This will not only help you prove good banking conduct, but the actions we recommend will also help you improve your credit score, which in turn will not only increase the probability of a successful finance application but also help you obtain a better loan rate and lower repayments.