The ins and outs of borrowing credit

So, you know that credit scores matter, but do you know the full story behind credit? What is it really, and how can it help you? Here’s the lowdown on the various forms of credit and who to ask if you need some.

What's in this guide?

The history of credit

If you’d paid attention in history class, you’d already know that borrowing systems are nothing new. The Sumerians – the earliest known civilisation of southern Mesopotamia – are thought to have cooked up the idea of consumer loans for agricultural purposes 5,000 years ago. Can you believe it?

Q1: What is credit?

In terms of personal loans, credit is money a lender provides you under a repayment agreement.

This agreement includes how much credit you're being offered, the time frame and how often you are expected to make repayments.

Common forms of credit

  • Credit cards. It's right there in the name, isn't it? When you use a credit card, you spend money without it being directly debited from any of your accounts at that time. That means you're making purchases on credit...with a card.

  • Loans. This is another major source of credit. Car loans that help you get behind the wheel of your new ride without laying out every cent. Home loans and mortgages to get the keys to your new place. Personal loans that let you live life on your terms. 

  • Lay-by or buy now, pay later agreements. Using newfangled, modern-day buy now, pay later services or their spiritual predecessor: lay-by are both versions of buying something on credit.

  • Recognition for that hilarious story your cousin has been retelling as their own for years now. You'll probably never get the credit for that one.

Revolving and instalment credit

Alright, back to reality. Credit generally falls into two baskets: revolving and instalment.

Revolving credit has got some serious merry-go-round vibes, and if you're not careful it can feel like you're trapped on a ride, sick to your stomach and spinning out of control. Revolving credit is paid off and then generated again, much like a credit card. 

As its name suggests, instalment credit is paid down in instalments. Traditional loans or buy now, pay later agreements are everyday examples of instalment credit.

Q2: What's a credit score?

A credit score is a snapshot of your credit history put together by a credit bureau. It's a mashup of several factors, including how much credit you have available, whether you've been on your best behaviour in terms of paying your debts on time and a few other bits and pieces. 

When you apply for a loan, lenders will hit up credit bureaus for your credit report. This gives them a better idea of whether or not they feel comfortable extending credit to you via a loan.

Still hungry for more credit score chat? Tuck into our Smart Guide on Credit Scores and fill your boots.

Q3: Who offers credit?

In general, there are two main places you can go for credit in Australia: banks and non-traditional, non-bank lenders.

Banks have dominated lending practically forever. Until recently, you’d have to front up to a bank in person and fill out actual pieces of paperwork with an actual pen if you wanted a loan. The vibe sucked and the music was even worse.

Now that things have gone from IRL to URL, non-traditional lenders have proven there’s a better, smarter way of doing things. Non-traditional, non-bank lenders are organisations that offer loans without the hassle of dealing with a bank.

The benefits of the non-bank lender

Here are some of the pros of choosing a non-bank lender.

  • Less charges for overheads. It costs a lot of money to have a brick-and-mortar shop front in every neighbourhood. But it’s not the bank who pays for that: it’s you. Non-bank lenders are typically fully digital.

  • More independence. Non-traditional lenders don't operate under the same financial constraints and obligations of bigger banks, freeing them up to offer you better, more advantageous loan options and lower rates as they see fit.

  • Better customer service. Smaller teams work hand-in-hand with applicants to find the right solution. Non-traditional lenders can offer more bespoke options that suit you better.

  • Improved digital product. Many non-traditional lenders are run by digitally literate humans who know how to make tech work best for you. Think more emojis, less landlines. 

  • More adaptability. By staying independent, non-traditional lenders can be more agile and responsive to your needs. Big banks have a glacial rate of change, if any at all. 

  • Quicker approvals. All of the above translates into quicker approvals for you. Fill out your deets, press a few buttons, and your loan is on its way.

The rise of the neo-lender

You’ve probably already figured it out, but Wisr is actually one of those super-hip, non-traditional lenders! In fact, we're Australia's first ASX-listed neo-lender. 

A neo-lender is a financial institution that operates solely online and doesn't have a physical branch. That list of pros you just read? That's us, baby! Better, quicker loans from people like you, for people like you.

Ditch the big banks, get in touch today, and join the neo-lending revolution.

Did you find this content helpful?

Disclaimer: This article contains general information only, and is not general advice or personal advice. Wisr Services does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.

Joanne is a respected leader of multiple disciplines within Banking, with 17+ years’ experience ranging from credit risk, product management, pricing, analytics and strategic project delivery.

Joanne, Chief Operating Officer

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