If you have paid any attention to loan services in Australia, the first thing you’ll notice is that there are thousands of operators offering “the best possible deals” to lure you into doing business with them. In the past you were not exactly on a safe spot by engaging in deals with most loan operators due to their shady reputation and because most of them were making deceiving offers to tie up as many people as they could into loan deals they couldn’t get off easily.
Due to Australian regulations laws on the financial system, that situation changed a few years ago. These days any bank or loan agency offering these type of services must display a comparison rate detailing all the fees and charges related to their business structure. Some service providers will showcase a detailed chart offering all the details for business loans, home loans, and even personal loans.
Once this system was implemented it gave a better perception to the general public about the type of money they could borrow from these agencies, it also led to the public differentiation of how each service provider worked. Over the next few lines, we’ll bring forward some of the key differences among loan service providers in Australia and how they work according to the type of institution they are.
These types of financial institutions are directly endorsed by the Australian government since they have worked over to earn all the permits granted by ministers and public offices to offer their services. The institutions falling on this category are banks, building societies, and credit unions. They can set up shop to offer almost any financial service known to man to every sector of the economy on the nation.
Banks have the benefit of working with fund management institutions and insurance companies. Building societies can offer services related to personal loans on almost every category, while credit unions can provide these services on a smaller scale. All these institutions are regulated by the Australian Prudential Regulation Authority so they all answer to their authority and regulations even if they are international branches of companies working on Australian soil.
Non-Authorized Deposit-Taking Institutions
While at first glance the name might imply that these institutions are not regulated by the state, this is hardly true at all since they are appointed by a separate government agency called The Australian Securities and Investment Commission. They regulate their activities to avoid wrongdoings and scams.
The institutions falling on this specific branch are money market corporations, broker-dealers, general finances companies, and securitizers. Corporations and broke dealers operate by borrowing and lending money to wholesale marketers, large corporations and even to government branches.
Finances companies like Discovery Credit offers all types of loans to households, small and medium-sized business and smaller-scale wholesale operations. Securitizers issue receivables of all sorts such as bonds and papers to the capital market backed by specific negotiated guarantees.
A lot of independent and small-scale operators fall inside this category, almost all of them are regulated by both APRA and ASIC. According to Australian laws, the service providers that fall inside this category are life insurance companies, general insurance companies, health insurance companies, superannuation funds, public unit trusts, cash management trusts, friendly societies and common funds.
Each one of these operators handles their business with different approaches even if they share some common grounds. Such is the case of the insurance companies listed: Life insurance companies strictly provide life, accident and disability insurances.
General insurance companies provide coverage for general properties such as home, vehicles and employers liabilities. Health insurance companies must offer coverage to health-related issues. All these companies are suited to handle their assets using statutory funds and invest their earnings on equities and debt security.
Superannuation funds are set to manage the savings of paid employees as investment trusts. The money is handled by the trustees via an elected directive and they often require the help of advisers to make the right move and avoid losing money. Their business structure is aimed at maximum profitability so they are able to offer loans, but their services are usually quite expensive for the small business owner.
On the other side of the spectrum, we have Public unit trusts and Cash management trusts. These business operators handle small loans based on the basic trade of goods such as cash, properties, savings, mortgages, and vehicles. Some of them are subsidiaries of banks and they are often used to make collections of unpaid debts. Their business structure is based on short-term returns.
Friendly societies and common funds are mostly based on private partnerships to offer lending services using a fund-like business structure. They also specialize in handling small operations but they tend to work better by backing their ability to collect unpaid debts by using the Australian legal system.