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Neobank CEO urges borrowers to build buffer

Borrowers should resist the urge to take on more debt and build a buffer to guard against the continued weakness in the economic environment, according to the CEO of a challenger bank.

Co-founder and CEO of Xinja Bank Eric Wilson has said that the Reserve Bank of Australia’s decision to hold the official cash rate at 1.5 per cent should not deter borrowers from attempting to pay off their debts and building a financial buffer as a protection against continued weakness in the economy.

“While it’s tempting to borrow when rates are this low, borrowers should accelerate debt repayments if they can, to build a buffer against signs the economy is slowing,” Mr Wilson said.  

“Rates this low, even without an official cut, mean the economy is sluggish and there’s little or no inflation.

“Our advice is to get yourself in the best position to deal with lower economic growth and the possibility of lower jobs growth by cutting your debt as much as you can.”

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The RBA’s decision to hold the cash rate took some analysts by surprise, with continued weakness in the credit and housing market, high household debt levels, and a flat inflation rate prompting calls for economic stimulus.  

However, Mr Wilson said that Xinja’s lending strategy would not be beholden to market trends.

Xinja, which currently holds a restricted banking licence, is planning on launching its own loan products upon its receipt of a full banking licence from APRA.

Mr Wilson said that the lender would not base its interest rates on traditional market indicators, adding that pricing would be tailored to reflect an individual borrower’s financial circumstances.   

“We’re intending to offer a sharper rate to those who manage their money well,” he added.

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“We think customers should be rewarded for this behaviour and continue to be rewarded.

“We don’t like special rates for new customers that aren’t shared with current borrowers. In fact, the longer you are with us, the keener we hope to be able to price your loan assuming your financial data is sound.”

[Related: Xinja hits minimum target on path to $5m equity raise]

Neobank CEO urges borrowers to build buffer
Xinja CEO Eric Wilson
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