Do you frequently withdraw cash from an ATM as a means of limiting and tracking your spending? Often seen as logical in times past, this daily activity (also referred to as cash budgeting), may be impacting whether your loan is approved.
Withdrawing cash to track your spending is an outdated form of budgeting, and it has the power to do more damage than good when considering recent changes to the consumer lending environment.
We hear you – can something as minor as this really affect your loan application?
The short answer is, yes.
Most lenders now have the capacity to not only easily determine the degree of income that is being withdrawn at ATM, but also pinpoint the location of these withdrawals. This will allow lenders to flag transactions for potential gambling at hotels, bars and clubs. Even if borrowers may legitimately be taking out cash to save, lenders cannot track these savings physically and may consider the full amount in your monthly expenditure.
Ultimately, this can affect the amount they may lend to you – also known as your “borrowing capacity” – or if they will even lend to you at all. To read more about simple changes you can make to increase your chances of loan approval, check out our article on 5 steps for getting a loan approved.
What you can do to minimise the impacts of cash withdrawals on your loan application.
For a start, minimise your ATM withdrawals where possible. With access to your bank statements – lenders can easily calculate the percentage of income being withdrawn at ATMs. This can be a red flag on your application when calculating expenditure and what lenders often view as discretionary spending, or even gambling.
Rather than withdrawing cash to budget or save, open a separate bank account and limit access by not having a debit card for the account.
Online banking and immediate transfers between accounts make it simple to create multiple accounts for a variety of uses. As an example, have a ‘rainy day fund’ for savings or an ‘everyday’ account for general living expenses. This shows lenders your capacity to manage your everyday expenses, savings and existing commitments, whilst also accounting for all income in your bank accounts.
There are a multitude of ways to help you better budget your money, which won’t affect a loan application.
ASIC (Australian Securities and Investments Commission) have an easy-to-use expense tracking app called TrackMySpend, which is a great place to start.
Lenders look at a variety of financial characteristics when deciding whether to approve your loan application, with the approval process varying for each lender. At LoanU, we look at your story, and we certainly don’t judge you for black marks on your financial history.
Check if you qualify for a loan with LoanU – without damaging your credit score by entering your details into our qualification calculator.