Payday loans offer a handy short-term solution when you need cash in a hurry.
No matter how good you are at managing your finances, sometimes unexpected expenses crop up and you need money in a hurry. It could be a hefty vet bill, urgent car repairs or simply a purchase that you just have to make, but getting access to all the funds you need can seem beyond your financial grasp.
This is where payday loans come in. These small, short-term loans are designed to cover you until payday. They give you the funds you need to make your purchases and then, when you next get paid, the theory is that you pay back the loan amount.
A number of New Zealand lenders specialise in offering these types of loans, with many even giving financing to customers with bad credit histories. However, you also need to be wary of the short loan terms, high interest rates and high fees these loans attract.
Benefits of payday loans
- Get money fast. Payday loans offer a quick and convenient way to access the funds you need.
- Easy application process. You can typically apply for these loans quickly and easily online, with fast approvals granted to many customers.
- Know the fees upfront. Lenders will inform you of the fees and interest rate attached to your loan upfront so you know exactly how much you will have to pay back.
- Quick access to funds. As a payday loan is something you take out when you need money fast, most lenders will give you fast access to your funds.
- Low minimum amount. You can borrow as little as $100 with a payday loan, meaning you can borrow as much as you may need to cover a particular bill.
- Accessible credit option. You can still apply for a payday loan even if you have a bad credit history or an outstanding loan. As long as you can afford to pay off the amount you apply for, you have a chance of being approved.
How to compare payday loans
As these types of loans become increasingly popular in New Zealand, borrowers are finding themselves with more lenders and more loans to choose from. You should take the following factors into consideration when deciding on the right product for you:
- Fees and interest. The interest rate and fees on a loan will obviously affect just how much you will have to pay back over the life of the loan. Look for a competitive rate and low fees.
- Lender. Unfortunately, this is a sector of the market that can attract some unscrupulous operators. You need to ensure that you take out a loan with a provider who is trusted and respected, and one who offers full transparency when it comes to all the features and fees of your loan.
- Loan purpose and conditions. Different loans attract different terms and conditions, so you’ll obviously need to find one that satisfies your requirements. For example, some loans have higher maximum borrowing limits than others, while some lenders can guarantee faster loan approval and access to funds than their competitors.
What fees are associated with payday loans?
Fees can vary between lenders, but you can generally expect to have to deal with the following charges when taking out a New Zealand payday loan:
- Establishment fees. These are designed to cover the cost of setting up your loan.
- Credit fees. This expense covers the cost of distributing the loan amount to you.
- Monthly account fees. You may have to pay a monthly fee until your loan is paid off.
- Interest fees. These fees reflect the interest that will be charged on your loan.
- Direct debit fees. Some lenders will charge you if you make repayments via direct debit.
- Late payment fees. Miss a repayment and you will be slugged with this fee.
- Arrears fees. Expect to be hit with a fee if your account goes into arrears.
- Collection fees. If your loan is referred to collections or if you default, expect to be hit with fees.
- Collection letter send out. You will be charged a fee if you have failed to make a repayment and the lender is forced to send out a collection letter.
- Statement fee. Requesting an account statement may result in a fee.
Pros and cons
- Convenient. These loans offer a convenient finance solution when you need fast access to money.
- Fast approval. Many lenders offer approval of applications within minutes and can then transfer the money to your account within an hour.
- Choice. This is an increasingly competitive market sector, which means consumers have an ever-growing range of lenders and loans to choose from.
- High interest and fees. These loans attract higher fees and interest rates than other loan products.
- Dodgy operators. Remember to keep an eye out for unscrupulous lenders.
Applying for payday loans
The application process for payday loans is generally quite simple, with most lenders allowing you to apply and gain approval online. Each lender will have their own criteria in place for prospective customers, so to be eligible for a payday loan you will generally have to:
- Be over 18 years of age
- Satisfy minimum income requirements
- Receive frequent and regular income into your bank account
- Receive less than half of your income from benefits
- Not be self-employed
- Be able to demonstrate that your current financial situation is stable if you have a bad credit history
What you need to know to repay your payday loan on time
There are two things you can do to ensure that you pay off your loan on time. The first is to make sure you’re fully aware of the fees, charges and interest rates attached to your loan. This will help you understand exactly how much your loan will cost you.
The second thing you will need to do is carefully manage your budget. If you fail to make your repayments, you can expect to be hit with hefty fees and charges which can quickly increase your debt. Planning ahead and staying in control of your finances is the best way to secure your financial future.
Interest rates on payday loans
From a lender’s point of view, offering payday loans exposes them to a higher level of risk. As those who want payday loans are typically in difficult financial situations, lenders know there is an increased chance of borrowers defaulting on their loans. Customers may have a poor credit history, a low income or very few assets to their name, so lenders need to protect their interests in case of missed payments and defaults.
With this in mind, lenders charge higher interest rates on payday loans than on other products. Lenders must make you fully aware of these rates before you take out such a loan, ensuring that you know exactly how much you’ll need to pay back thanks to the addition of interest charges. You’ll also be made aware of the required repayment amounts and frequencies you will need to meet to stay on track.
Are payday loans a good idea?
If you can stick to the repayment requirements and pay off your loan within the given period, payday loans offer a convenient way for you to access much-needed funds. However, if you take out a loan you cannot afford or if you fail to pay back what you owe, these types of loans can present a dangerous borrowing prospect to some customers. You can quickly find yourself buried under a ever-growing mountain of debt, so you should only take out a payday loan if you are sure of your ability to pay it off.
Frequently asked questions
What can I use a payday loan for?
Payday loans are designed to help you cope with urgent expenses that you cannot afford upfront but that you will be able to afford to pay off within a short period. Due to their short loan terms, they should not be seen as a long-term solution to your financial problems.
How much money can I borrow?
Lenders typically let you borrow between
$100 and $1,500, though the exact minimum and maximum limits will vary between providers.
Payday loans have worked for me before. Can I take out another one?
As long as you have made all your repayments on time in the past, it’s generally entirely possible to use a payday loan to deal with a future unexpected expense. However, you need to be careful not to get into too much debt and you may need to consider other financing options if you’re regularly looking to borrow money.