According to a recent banking knowledge survey, which polled 1,500 Australians, few consumers made good banking decisions. Firstly, under 50% of survey respondents passed a basic banking literacy quiz. Another 13% confessed they had below average banking knowledge. So, how would you rate, and is it possible to upskill?
The good news is regardless of how you rated in a similar survey; you can always up-skill. With lending standards changing constantly, keeping up to date with banking allows you to make sound decisions. Plus, you can get further ahead faster, building a sounder financial future.
Based on the survey results, there are large gaps in home loan banking knowledge. For instance:
- 74% of respondents did not know what home loan comparison rates were. As a result, these people may not realise the full extent of the fees they are paying.
- 42% of survey respondents didn’t understand compound interest. By not understanding this they may not select the right loan for them, so their money isn’t working hard enough for them.
- 36% said they did not realise reducing a loan term decreased the amount of interest they paid. Therefore, they may be paying more interest than needed.
So how do you think you’d go in a banking or home loan exam? If you’re like many Australians, then you would need to brush-up on your knowledge. Hence, we’ve put together a brief list explaining some of the most frequently misunderstood banking and home loan terms.
- Comparison rate – Many people think a comparison rate is what other banks are charging for the same loan. However, the truth is a comparison rate is the full cost of a loan including fees and charges. Then, a rate of 4.95% with a comparison of 5.25% means the loan costs you 5.25% when adding fees and charges.
- Compound interest – This form of interest incurs on the initial loan principal and the interest accumulated. Therefore, on the first day of the month, you’d pay interest on the principal of your loan. On day two, you’ll pay interest on the first day’s interest plus the principal, and so on and so forth. Thus, paying your mortgage weekly helps to reduce your debt faster.
- Reducing the loan interest by reducing the term – By paying more off your loan, you reduce your principal. Consequently, you incur less interest and pay off your house sooner. You can do this by simply paying an extra $10 or $20 a week, or you can pay a lump sum monthly, quarterly, or yearly.
Whether you’re looking at opening a term deposit or borrowing to buy a home, it’s important to understand how banking works. If you don’t, then you could get the wrong product or pay more than needed. So, what can you do to improve your banking knowledge?
- Find banking articles – The internet is a wealth of information. There are hundreds of articles found on websites. These allow you to improve your banking But, just remember to read a little a lot, rather than trying to read lots in one hit. Otherwise, you’ll bombard yourself with too much knowledge and find it overwhelming.
- Take quizzes – Simply type ‘home loan quiz’ or ‘banking quiz’ into a search engine. Then, take your time answering questions. If you find you get the questions wrong, then take the time to find the right answer. Over time, your knowledge will improve.