Payday loans

What is a payday loan?

Payday loans are a short-term finance product designed for borrowers to repay in line with their pay frequency (hence the name), so the loan can be repaid every week, fortnightly or monthly.

The amount you can borrow is typically between $300 and $2,000 for a period of 2 days to 6 months, or if you want to borrow $5,000 you may have up to 1 year to repay it. The time it takes to receive approval is relatively quick, and may even be within the hour. This means if you are in need of the money quickly, there are lenders that can help.

Please be aware that payday loans usually come with a shorter loan term and higher interest and fees, so you need to ensure that you can comfortably repay the loan amount.

What if I can’t repay a loan?

If you don’t make repayments on time, you are in default and the loan provider charges you a fee. Any defaults are also listed on your credit report as a negative mark and may be there for up to 7 years. If you have a loan and are not sure if you can make the repayments, see Finder’s guide for tips on what to do next.

Only apply for a loan that aligns with your budget and is within your capability to repay. If you have any doubts about your ability to meet the loan repayments, you should consider other options and not apply for the loan.

How much will a payday loan cost?

As well as paying interest, there are a number of other fees and charges associated with payday loans to watch out for. These typically include:

• Establishment fee. To cover the set-up of the loan.
• Monthly account fee. To cover ongoing administration costs.
• Late payment fee. If you default on a payment.
• Various collection charges. If your account goes into arrears.

The short-term loan application process

This is how the short-term loan application process works:

Step 1: Compare lenders

Finding the right lender is the first essential step of the application process. Review the loan amount, fees, turnaround time and the loan term to ensure you apply for a loan that meets your needs.

Step 2: Review the eligibility criteria and necessary documents

Every lender has different eligibility parameters, but generally, you need to meet the following minimum criteria:

• Be over the age of 18
• Be a New Zealand citizen or permanent resident
• Receive a regular income, either through employment or Work and Income benefit or both.

Typically, you need to provide the following documents to apply for a payday loan:

• Documentation to verify your identity, for example your driver’s licence, passport or 18+ Card.
• Proof of address, such as a recent utility bill, statement or government letter.
• Your employment details, including whether you work, how long you have been employed there, and the nature of your employment (full-time, part-time)
• Your income and expenses.
• If you receive Work and Income payments, you need to provide details of this and may need to provide receipts.
• You need to indicate whether you have taken out a short-term loan in the last 90 days and whether you will use this loan to pay off another payday loan

Step 3: Approval

Lenders can usually let you know if you have received approval in a matter of minutes because most use a system to approve the application rather than a human being. If they require more information to accept you, the lender will contact you, but this may delay your application.

Step 4: The contract

If you receive approval, you need to agree to the loan contract before the lender sends the funds. Many lenders do this by sending an SMS or a copy of a digital contract that you sign online.

Review the agreement carefully, as it sets out your loan term, repayment amounts and the fees for late-payments or defaults. If you have any questions about the contract, contact your lender.

Step 5: How long it takes to receive your funds

The time it takes to transfer the funds differs between lenders and may also depend on who you bank with. If the lender uses the same bank, you may receive the funds within minutes of the lender sending them. Some lenders can also do this if you bank with any of the major New Zealand banks.

However, with most, you need to apply and receive approval by a specific time (usually around 3pm) for you to receive the funds on the same day. If you need the loan today, the earlier you apply, the better chance you have of getting the money.

Can I get a “no credit check” loan?

All responsible lenders will carry out a credit check to help them understand if you will be able to pay back the loan. Learn more about no credit check payday loans.

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 affect how much you have to pay back over the life of the loan. Look for a competitive rate and low fees.
• Repayment terms. Loan terms for payday loans can be around 2 days to 1 year. The length of the payday loan directly affects how much you pay because the lender may charge a monthly fee. Look at the loan terms on offer and use a loan calculator to determine how much the loan will cost over its lifetime.
• Quality of lender. Unfortunately, this is a sector of the market that can attract some unscrupulous operators. You need to ensure you take out a loan with a provider who is trusted and respected, and one who offers full transparency when it comes to the features and fees of your loan.
• Additional fees and charges. As well as upfront and ongoing charges, the lender can charge enforcement and default costs if you fail to repay your loan on time. Make sure you check how much the lender charges you if your repayment is late, you are sent a default notice or you need to reschedule a payment. If these charges are excessive, you may want to consider a different loan provider.
• The application process and turnaround time. Find out how you can apply, how quickly approval takes and when you can expect to receive your funds. If you need your funds by a specific time, this may be a deciding factor.

Tips on receiving approval for a payday loan

• Check the last 3 months of your bank statements. Lenders check these, so you also might want to take a look. Loan providers look for red flags, such as your account being overdrawn, or inconsistencies in the pay you receive into your account in comparison to what you state on the application. Other exchanges, such as gambling transactions, can also be an issue.
• Don’t apply for more than you can afford. Just because the lender allows you to ask for a specific amount doesn’t mean you should. For example, if you only apply to see how much you can get, the lender may reject your application entirely rather than approving you for a smaller amount.
• Provide as much information as possible. There can be a delay in many applications when the lender has to chase information. It can also lead to automatic systems not approving you for a loan instantly because you didn’t provide the necessary details. Check everything the lender needs and make sure you send it.
• Double-check the eligibility criteria. Lenders set minimum eligibility criteria which you need to meet before you apply. If you don’t meet one or more of the requirements, do not ask for the loan. It leads to a rejected application on your credit file, which makes it more difficult to receive approval for a loan in the future.

Can you take out a second payday loan?

It is possible to take out a second payday loan, but you need to meet more stringent criteria than with the first loan. This is not because lenders apply different rules to second loans but because payday lenders have to take further steps to ensure you won’t be under substantial hardship.

What do lenders look at when I apply for a second payday loan?

A lender needs to ensure you can repay the loan without hardship. To do this, it will review your current financial situation and look at multiple factors, including:

• Your credit history
• Your employment and income details
• The payments you make on your existing payday loan or any other loan
• Whether you receive Work and Income payments

How can I make sure I receive approval for a second payday loan?

There is no way to guarantee approval, and doing so for the second time is probably harder than the first. It’s essential to bear the following in mind:

• Before applying, re-examine the lender’s eligibility criteria. You may or may not be eligible for the loans you once were. Some lenders may specify you cannot currently be repaying a payday loan or use this one to repay a previous payday loan, so check to avoid rejection.
• Check your budget before applying. Can you afford the repayments of this second loan? If you think you are going to struggle to make multiple loan repayments, then you may want to consider alternative finance options, such as community financial assistance programs, or reconsider if you even need the loan. Payday loans are not a long-term economic solution and are only meant to serve an immediate need for funds.
• Compare your options before applying and always scrutinise the eligibility criteria. There are a range of payday loans available, so you have a better chance than ever of finding the right one for you.

Frequently asked questions about payday loans

• What can I use a payday loan for?

  Payday loans can be used for a wide range of purposes, but are usually for sudden expenses. Typical uses for these loans include forgotten bills, car repairs or any other unexpected expense.

• How much can I borrow?

  Lenders have a maximum loan amount and this may be lower for first-time borrowers. The amount you can borrow depends on how much you earn and your financial situation – in short, your ability to repay the loan. You can use a loan calculator, to see what your repayments are with different loan amounts.

• I've never taken out a payday loan before. What do I do?

  If this is your first time applying for a payday loan, it’s essential to understand the process before you do so. The entire application takes place online, so make sure you have all your documents and financial details handy. You need to consider things like income, employment terms and Work and Income payments. You can also get an idea of the repayments using the tables above.

  Once you compare your options and have chosen a lender, click “Go to site” to head to its website and start your application.

  Each lender is different, so ensure you read each step before continuing. Make a note of the terms and the repayment amounts (and dates) and ensure you have enough money to repay the loan.

• Can I get a payday loan if I receive the pension?

  If you have retired or are physically unfit to work, you can still access a line of credit or a small personal loan. Some lenders consider your pension an income, so you may still be eligible, depending on your financial situation and what you need the loan for. You can read the guide for pensioners who need a loan. It’s full of tips on how you can maximise your chances of success when applying.

• Are payday loans a bad idea?

  Payday loans are an expensive form of credit and should only be applied for if you have no other options. Some lenders have been criticised for predatory behaviour and approving loans to people who can’t afford it.

  It’s important to remember these loans are expensive and you shouldn’t apply if there are alternatives available. Before you apply, see if you are eligible and if another credit type better suits your needs. It’s also a good idea to calculate costs, to see if any of the alternatives are cheaper than a payday loan.

  For example, a credit card cash advance is a convenient way to get cash but can carry a 20% interest rate. There are also “no and low-interest loans” you can consider if you receive Work and Income payments or are on a low income and need money to purchase essentials. If you have no other alternative and have determined you can afford the loan, then a payday loan is a viable option.

• Can I pay out my payday loan early?

  Many payday lenders allow you to pay out your loan early, without charging any extra fees. You still have to pay the full amount, associated with your credit contract. Contact your payday loan credit provider if you would like to organise an early payment.

• Can I have my loan deducted from my pay?

  The majority of lenders direct debit your bank account on the day you get paid, but do not deduct the amount directly from your pay.

• How quickly does the lender transfer my payday loan?

  Most payday lenders provide you with a decision on the spot or within 60 seconds. They may need supporting evidence of your wage and employment, via bank statements and payslips. Depending on who you bank with, the funds may be in your account within 24–48 hours, which can also depend on whether it is your first loan and if it is a weekend or public holiday.

  Many payday loan providers claim to offer same-day funding, but this usually depends on which bank you are with or whether you hold a prepaid payday loan Visa card. If you need cash on a Saturday or Sunday, and you already have a relationship with a lender, it could be worth considering comparing its offerings.

• Is it a bad idea to keep taking out payday loans?

  If you make all of your repayments on time, a lender may approve you for another loan.

  Some lenders have benefits for repeat borrowers, such as increased borrowing amounts and quicker funding. However, bear in mind these loans are not a long-term solution, and if you frequently need to borrow money, then you may need to consider a longer-term borrowing option or a more stable line of credit.

• How do I know if my details and account are secure?

  New Zealand payday loan companies use a secure online system, such as Verisign, McAfee or Norton to secure data.

  Payday loans applications are generally carried out on a secure online application form to help protect your privacy. These systems use a 128-bit secure server and SSL encryption to ensure your personal information cannot be stolen.

  To verify your income, payday lenders may need a snapshot of your account for the past 90 days. The services involved are 100% safe and secure, and they provide a “read-only” view of your account. They do not transmit any personal details and do not need access to any other information besides your financial history.

• I just changed bank accounts, can I still apply for a loan?

  If you have recently changed bank accounts, your income may be hard to verify. If you have access to your previous bank account, you should attempt to obtain statements for the last 3 months to prove your income. If not, your previous institution should be able to give you access. The more information you can provide, the better your chances are of receiving approval.