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Personal loans are an agreement between you and a lender for you to be given a secured or unsecured line of credit up to $100,000 and pay it back over time. You can use the money for a range of purposes, such as buying a car, consolidating debt, paying for a wedding or even taking a holiday. Here’s how they work:
Application and approval. You can apply for a personal loan from a bank, credit union or standalone lender online. It can also be done over the phone or in-branch, depending on what application types the lender offers. The time it takes to be approved depends on the lender, but it can range from anywhere between 60 seconds to a few days.
Loan contract. When you are approved for a loan you will need to agree to a loan contract that sets out certain terms. These terms include how long you will have to repay the loan (the loan term), what fees you need to pay, and the rate of interest you will be charged on your loan amount.
Loan terms. Your loan terms will be set out in your loan contract. Generally, loan terms range between three months and seven years. You will have to make repayments weekly, fortnightly or monthly – most lenders allow you to choose what is best based on when you receive your income.
Loan costs. Lenders agree to lend you money in exchange for interest, which is charged annually. This interest can be fixed or variable. Other loan costs include establishment fees, monthly fees and direct debit fees. You should also check if you will be charged fees for repaying your loan early or making additional repayments. Cheap personal loans have less fees and no early repayment penalty compared to other loans.
Loan types. There is a wide variety of personal loans available in the market, with each one with their own terms and restrictions. For instance, when you apply for a car loan the lender often requires that the entire loan amount be used for your car purchase. The car is also generally required to be used as security in case you default on the loan. An unsecured personal loan, on the other hand, is less restrictive and you can use the loan amount in almost any way you choose.
Types of personal loans
There is a wide range of personal loans available in New Zealand to those who have stellar credit, average credit or bad credit. Find out what loan may work for you with the below options.
Secured personal loans. This type of loan works by you offering an asset as security in exchange for lower rates and fees. Usually, this loan is used to purchase a car, but other types of assets can be used as well.
Unsecured personal loans. If you don’t want to put up an asset as security, or want to finance something unsuited to a secured personal loan, you might want to consider a loan that doesn’t require an asset as guarantee.
Line of credit. You will receive access to a set credit limit, but only pay interest on the funds you have used. You can consolidate debts or even fund a range of purchases with this type of loan.
Debt consolidation loan. Existing debt can be managed by taking out a debt consolidation loan. Consolidate separate loan accounts into one easy-to-manage loan with a potentially lower rate and with fewer fees.
Overdrafts. An overdraft is a lot like an unsecured loan but it is generally attached to your everyday bank account. You are given a set amount that you can withdraw from your account, once your own funds have been exhausted.
Personal loans are useful tools that can help you save money and time when you’re juggling existing debt, facing specific types of bills or looking to leverage improved credit.
If you’re struggling with multiple debts
A top reason borrowers take out a personal loan is to consolidate and pay off debt. Debt consolidation involves taking out a personal loan in the amount that you owe on your existing credit cards or loans and using the funds to pay off your creditors, ideally at a lower rate than the average you’re paying today. You repay your loan with fixed monthly repayments over a set period of time — usually up to 60 months (five years).
Because personal loans typically have lower interest rates than credit cards, you can save on unnecessary interest. If you consolidate two or more bills, you also simplify your life by paying one monthly payment to one lender.
If you have a personal loan and your credit has improved
If your credit score has improved or you’re making more money than you did when you originally took out an existing loan, you might be able to save money by refinancing.
Refinancing involves taking out a new personal loan to pay off a loan you already have in your name. While many borrowers refinance to take advantage of a more favourable rate, you can also refinance to take a cosigner off your loan or lower your monthly repayments.
If you have an expense you can’t put off
You need to buy a plane ticket, but you don’t have the time to save up for it. Or maybe you need to move cities for a new job, but you don’t have the savings on hand.
In these cases, a personal loan can help you get funds you need to take advantage of an opportunity. While it’ll cost you more than paying up front, that once-in-a-lifetime adventure or more lucrative job could outweigh what you’ll pay in interest.
If your insurance won’t cover a medical procedure
A personal loan isn’t always the best choice for covering the costs of an upcoming medical procedure. But if your only other option is in-house financing, you might find a better deal with a personal loan provider.
Ask your medical provider about its in-house rates and terms before you shop around to make sure you’re getting the most competitive offer you’re eligible for.
When should I not use a personal loan?
A personal loan can offer lower rates than credit cards and other forms of debts. But it might not be the best solution under a few key circumstances.
If you can easily save the money
Have your eye on a luxury item or feeling the itch for an exciting holiday? If your needs aren’t immediate, you might want to work out how much your repayments would be and save that amount each month instead. Otherwise, you could be paying for your splurge many years later.
If it’s a bad investment
Are you thinking of borrowing for home improvements or another investment? Make sure it’s bound to add value in the long run, otherwise you could be left paying interest on an improvement that ultimately lost you money.
If your income and employment aren’t stable
Taking out a personal loan when your finances are unsteady could hurt you in the long run. If you have reason to think your income or employment situation might change for the worse, consider cutting back on expenses or putting money away in a high-yield savings account instead.
How to compare personal loans
When comparing your personal loan options, it is helpful to keep in mind the range of features available with these loans. When you are comparing the options, here are some of the questions you need to ask.
What are you taking the loan out for? The purpose of your loan should help narrow down your options. Some loans, such as car loan, are designed with a particular purpose, while others are more open.
How much do you need to borrow? Depending on the amount you need to borrow, you may find your options more restricted. Check the individual loan products and take a look at what the minimum and maximum loan amounts are.
Does the loan have a competitive interest rate? Compare rates different lenders to ensure you are getting the best deal. Keep in mind that interest rates are often given as a range, and the actually rate you’ll receive will depend on your financial situation and credit rating.
What repayments can you afford? When comparing your options, you should ensure you can make your repayments. Put together a budget with all your essential outgoings and living costs like rent payments, utility bills, groceries and insurance, so that you can see how much of your salary or wages you have leftover.
What are the fees and charges? If you’re looking for a cheap personal loan, you need to consider both ongoing fees and fees charged at the onset of the loan. Common fees include an application fee or loan set-up fee, while monthly fees and annual fees are common ongoing fees. You may also be charged to use additional features of the loan.
Is there repayment flexibility? How often are you able to make repayments? Are you able to make additional repayments or pay off the loan early without penalty?
Do the loan terms match your needs? Personal loans are usually offered for terms of between three months and seven years. Some lenders are more restrictive than others when it comes to how long you have to repay your loan, for example, only offering terms of one, three or five years. Make sure the loan terms on offer are what you need. Long term loans over seven years often see lower repayments, but you will pay a greater amount of interest.
Did you know that every time you apply for a personal loan, it is recorded on your credit file? So when you find a personal loan, and you want to apply, make sure you do so correctly, as multiple applications can look irresponsible to lenders.
How much can I borrow with a personal loan?
There are a few considerations that come into play when determining how much you can borrow, including how much you can afford to repay and your loan purpose. Regarding how much you can apply to borrow, it usually comes down to the type of loan you apply for.
Unsecured personal loans usually offer loan amounts of between $1,000 and $65,000 while secured personal loans typically provide loan amounts of between $1,000 and $50,000 and car loans up to $150,000.
What do lenders consider when deciding how much I can borrow?
Lenders consider several vital pieces of information when approving your loan amount:
Your loan purpose. If you apply for a loan to buy a car, the loan amount is tied to the car’s value. If you apply to consolidate debt, it is linked to how much debt you have. Lenders also consider how risky the loan purpose is. For example, taking out a loan to go on holiday is riskier for the lender than buying a car.
Your income and finances. Lenders determine your ability to afford the repayments by how much you earn and your current outgoings, such as expenses and other debt commitments. You need to provide information about these as well as financial statements. The lender also checks your credit report.
Debt-to-income ratio. If you already have a significant amount of debt, a lender may see you as a liability and be less likely to lend money to you. Try paying off your existing debt before taking out another loan if you think this might be an issue.
How can I get the loan amount I need?
When you need to borrow a large amount, there is no guarantee you’ll receive the funds you’re looking for. However, following some of these tips may help you score the loan amount you need.
Improve your credit score. Putting yourself in a better credit position and proving yourself a reliable borrower may help convince lenders to approve you for a higher amount.
Reduce your debt. Paying off existing debt lowers your expenses and shows you can afford to take out a new loan.
Consider offering security. A secured personal loan, where you guarantee the loan with a car or asset such as a term deposit, can help improve your chances of receiving approval for the loan amount you need.
Interest rates and fees
The interest rate and fees you are charged depend on the loan you apply for (you can compare these on the table above), but each loan type comes with similar costs and understanding these can help you compare personal loan options.
Your interest rate will either be fixed or variable. Car loans tend to come with fixed rates while unsecured loans offer both, but you will find a mix of variable and fixed rates within each loan type. Variable rate loans mean the loan is more flexible and comes with longer loan terms, but fixed rate loans usually come with restrictions, such as not allowing you to make extra repayments. Fixed rate loans come with shorter terms, usually up to five years.
There are three types of fees you should expect: Upfront fees, ongoing fees and fees that are charged if you default on the loan or miss a repayment. Some lenders also charge fees if you repay your loan back early or make a lump sum payment.
Establishment fee. Most lenders charge an establishment fee to cover the cost of setting up the loan. The fee varies depending on the provider and the amount of your loan, but can be as high as $500.
Ongoing fees. Some loans have ongoing account fees charged weekly or monthly for account maintenance. These usually start from $2 a week. You may also be charged a direct debit fee on top of this.
Payment default. If you miss a payment or do not have funds in your account when your direct debit is due to go out, you could be charged a payment default or insufficient funds fee. If you don’t get your payments back on track, there could be further charges added to your account.
Early repayment. While some lenders encourage you to pay back your loan early without penalty, others will charge you for doing so. This is because they lose out on the interest payments so try to recoup costs in another way.
Loan variation. If you want to change the terms of your loan or extend the loan amount, a loan variation fee may be charged. This is not usually more than the original establishment fee but can still be hundreds of dollars in some cases.
Other fees that may apply to your loan include:
Debt collection recovery fees
Paper statement fees
Broker fees
It’s important to understand exactly what fees you may be charged before you sign your loan agreement.
Personal loan interest rate ranges explained
If you’re shopping around for a personal loan, you may have noticed that some lenders advertise their loans with interest rate ranges rather than a set interest rate. The range sets out the minimum and maximum rates you could get on a loan from a specific lender. If you apply and get approved for a personal loan, you’ll receive a rate somewhere in that range.
For example, if Lender X advertises a personal loan interest rate range of 7.5% to 20.15%, if you apply and are approved for a personal loan from this lender, the interest rate that applies to your loan could be anywhere within the range quoted.
However, the rate you get will be determined by a number of factors including your credit score, your overall financial situation and the loan repayment terms.
Does every lender have an interest rate range?
No. While some lenders use interest rate ranges, others have a set rate. If a loan is promoted with a set rate, everyone who applies and is approved for that loan will get the rate quoted.
Just like loans with interest rate ranges, personal loans with set rates are clearly advertised as such. This allows you to accurately compare loans with the same type of interest rate structure.
There are a number of reasons why some lenders offer interest rate ranges for their personal loans, such as:
They can tailor the loan to suit the borrower. Rate ranges give lenders the flexibility they need to tailor their personal loans to meet the unique financial needs and repayment terms of a wide variety of borrowers.
They can approve a wider range of borrowers. By offering a set rate, lenders limit the number of borrowers that will meet the necessary lending criteria and be able to afford to repay the loan. But if they introduce an interest rate range, they can make their loan accessible to a much wider range of borrowers with varying financial circumstances.
They can set the interest rate as per the level of risk. Different borrowers come with different levels of risk for lenders – for example, a high-income earner with a perfect credit history is a much less risky lending prospect than someone on a lower income with a low credit score. Interest rate ranges allow lenders to set a rate that reflects the risk profile of each individual.
How is the interest rate determined?
The difference between the minimum and maximum figures in an interest rate range can be quite large, so how does the lender determine the exact rate that will apply to you? Well, there are a number of factors that affect how your rate is calculated, and the process will vary depending on the lender you choose.
Some lenders determine your rate based on your credit score or credit history, while others calculate rates according to your risk profile. This means a lender may consider the following factors when deciding which rate in their personal loan interest rate range will be right for you:
Your credit score. Your credit score is a figure that represents your credit worthiness, and lenders use it to decide whether or not they should offer you a loan. The higher your credit score, the more likely you will be to make on-time repayments – which can help you qualify for a lower rate.
Your credit history. Your credit score is based on an analysis of the information in your credit file, and many lenders will also consider your file when determining your personal loan interest rate. Black marks in your file, such as missed repayments or debt agreements, could cause the lender to offer you a higher rate.
Your financial situation. You’ll also need to provide details of your financial circumstances when you apply for a personal loan, including details of your income and employment, your assets and liabilities and your ability to save money and make on-time repayments. The lender will use this information to determine your capacity to repay the money you borrow, and therefore work out your interest rate.
The loan repayment terms. The lender will also look at the specifics of your loan, such as the loan term and the frequency of your repayments, when deciding where to set your interest rate.
It’s important to read the fine print for more information on how each lender calculates their rates. Once you know the process involved and the factors to be considered, you’ll be able to formulate a clearer picture of the rate you may receive.
Finally, many peer-to-peer lenders can give you an interest rate estimate for your desired personal loan, and you can apply for an estimate without affecting your credit score. This is a very useful tool to help you figure out where you sit on the lender’s personal loan interest rate range.
Who is eligible for a loan?
Eligibility criteria for personal loans are set by each lender and are different for each type of personal loan. Some criteria are more strict than others. Generally, for any type of personal loan, you need to be over the age of 18 years and receive a regular income into your bank account. Here are some more specific requirements that you might need to meet:
You will need to be aged 18 years or over, with a good credit rating ( particularly if you are applying with the major banks) and earning an income. You may also need to be a permanent New Zealand resident or citizen. Some banks accept the pension or Work and Income payments as income for secured personal loans, such as my finance and Instant Finance. There may be a minimum income you need to earn before you can be approved.
There are also eligibility requirements for the vehicle or another asset you use as security. If it is a car loan then the car generally needs to be new, but some lenders will finance a used car if it is under a certain age. If you are using another asset, such as a house or boat, then the lender will usually have eligibility requirements for them as well. Some lenders accept assets like jewellery as security, so shop around and see what’s available.
As these types of loans are generally more risky to the lender, the eligibility criteria is generally stricter. As with secured loans, you need to be over the age of 18 and be a permanent New Zealand resident or citizen. You will normally need a good credit rating and not have too many open credit accounts, as this may be seen as potential debt by a lender. There is usually a minimum income requirements as well, and your personal finances may affect the loan amount offered.
Payday lenders generally offer fast approval and are more flexible with eligibility criteria. You will need to be receiving a regular income into your bank account, be over the age of 18 and a permanent New Zealand citizen or resident. While they may check your credit file, they focus more on your ability to pay back the loan amount rather than any defaults or listings.
If you don’t fall in to the typical lending criteria for a personal loan, it may still be possible to get the finance you need depending on your situation:
If you have a low income. Applicants with low incomes can still be approved for loans. However, it is always a good idea to check the borrowing requirements and check your repayments with a calculator.
If you receive Work and Income payments. If you receive a pension, Work and Income payments or other benefits, you may still be eligible. It is important to make sure you can meet the repayments before applying.
If you have bad credit. You are still able to apply for certain personal loans if you have negative marks on your credit file. Bad credit loans are still possible. You might end up paying a higher interest rate on these loans, so it is important to compare a range of offers before applying.
If you have existing credit card or personal loan debt. You may still be approved for a new personal loan, but you should calculate your repayments and your debt levels before continuing.
If you don’t meet the minimum requirements. You still might be able to apply with a guarantor. This is where someone, usually a family member such as a parent, agrees to ”guarantee” your personal loan should you fail to meet your obligations.
I AM A TEMPORARY RESIDENT ON AN ESSENTIAL SKILLS WORK VISA. CAN I STILL GET A LOAN?
Did you know you may still be able to get a personal loan if you hold a temporary visa, but many of the big banks won’t lend to you? If you are researching institutions that might lend to you on your temporary essential skills work visa, then it is best practice to go in armed with as much knowledge as possible. Find out which banks might offer you a loan; what the criteria is and how you can maximise your chance of being approved.
How to apply for a personal loan
Confirm how much you need and why. Make sure you know how much you want to borrow and have worked out that you can meet the repayments.
Choose a secured or unsecured loan. If you already own an asset or are looking to buy one, then a secured loan may be an option. If not, you may want to consider your unsecured personal loan options.
Choose your terms. A calculator can help you work out your repayments.
Start your personal loan research and comparison. This is an important step to finding the best loan option for you.
Click through and apply. Most lenders allow you to complete an application form online at a time convenient to you. You can also upload documents and have everything approved and signed without leaving home.
What information do I need to provide?
The amount of information that you are required to give can depend on the lender and type of personal loan. You can expect to be asked for some or all of the following when completing an application form:
Personal details. You need to provide your name, contact information and proof of your identity.
Employment information. This includes where you work, your income, and the name and contact information of your employer.
Details of your assets. This includes properties or vehicles you own as well as any savings you have accumulated.
Details of your liabilities. Liabilities refer to any open credit accounts, existing credit and store cards and any debt you owe on your mortgage or other loans.
Required documentation
Each bank and lending institution has its own criteria you have to meet to finalise your loan application.
You will usually need any of the following to prove your identity:
Driver’s licence/18+ card
Passport
Firearm’s licence
In many cases either a passport or driver’s license is all that is needed, but some lenders ask for two forms of identification. If so, a photo ID and another card such as a Community Services Card or credit card with embossed name is usually sufficient.
If you are not a New Zealand citizen, you will also need to show your residency visa.
Any time you take out a loan with a lender you don’t have a relationship with, you will need to prove your address. The following documents are often suitable:
Bank statement
Government letter, for example, a letter from the IRD or WINZ
Utility bill – phone, power or broadband
The document will need to be dated within the last three months and clearly show your full name and address.
You will need to verify your income. The actual verification required may differ between lenders. Common requirements are as follows:
Payslips for the previous three to six months
Bank statements for the past three months
Two years tax returns (if self-employed)
Many lenders that operate online use special software that allows them to view your bank accounts in a secure way. This saves the hassle of printing and sending statements and doesn’t give access to any functions within your accounts.
You may also need any of the following documents:
Statements from other loan accounts, credit cards or store cards
Income statements from any of your income-producing assets
An estimation of your current expenses
A current rent or mortgage statement
Applying for a car loan requires various documents to have the car verified:
VIN or chassis number, engine number and registration plate details
The car dealer’s contact information, or the seller’s contact details if it is a private sale
Tax invoice and receipt for the car or purchase price, if a private sale
Comprehensive insurance details
How can I improve my chances of the loan being approved?
There is no way to guarantee you are approved for a personal loan, but giving yourself the best chance at being approved starts with meeting the eligibility criteria set by the lender. To further your chances of being approved, keep the following in mind:
Establish your borrowing capacity. What repayments can you afford? Lenders will use a variety of criteria to decide how much you are eligible to borrow, but you need to know how much you can afford to repay.
Build good banking history. Keep your account in good standing to build a positive relationship with your bank, even if you don’t plan on borrowing from them.
Keep your credit rating in good status. Make sure you keep track of all your payments, from credit cards to utility bills, because any arrears, debts, or missed payments will affect your ability to access credit.
Keep track of your saving goals. If you manage to contribute to your savings regularly, it shows lenders you are likely to manage ongoing loan repayments.
Open a transaction account with the lender you’re applying with. If you’re applying with a bank that has transaction accounts and the personal loan isn’t time-sensitive, establishing a banking history with the lender can help get your application across the line. It can also speed up the application process.
Reduce the limit of your credit card/s. Not using your entire credit card limit? Consider lowering it if you’re not planning to use it soon. You’ll need to list the total limits of your credit cards on your personal loan application and any credit limit will be seen as a potential debt by the lender.
Pay off some of your credit card debt before applying. While the New Zealand credit scoring system doesn’t work in the same way as the US, where paying off your credit score can lower your credit score, it may help your loan application. If you take a look at your loan application (before submitting it) and the lender asks what is owing on your credit cards, see if you can pay down the cards before sending in the application. They are able to check the limit of your card on your credit file but not the amount owing – this is up to you to tell them.
Make sure you’re out of your 90-day probationary period before you apply. Lenders don’t want to take the chance of giving you a loan during your probationary period. They will not approve a loan if you haven’t been employed at least three months, no matter how secure you tell them the role is – if you have been employed six months your employer may receive a call to confirm you’re out of your probation period.
You’ve applied. Now what?
After you apply you might be eager to find out if you’ve been approved, and if you have, how much you can borrow. Depending on the loan you apply for, the turnaround time will be different. For more traditional loans, such as secured ones, the lender may take a few days or even a few weeks to approve your loan.
For a payday loan or smaller size loan, the turnaround time may be quicker. Some payday lenders offer approval within 60 seconds, and other banks and lenders offer small loans of less than $2,000 within a quicker time frame. Before you apply it’s a good idea to ask the lender what the typical turnaround time is, so you know if this is an acceptable time frame.
When applying for personal loans it’s important to be aware of the process to ensure you apply correctly. All your applications show up on your credit file and may affect your credit reputation, so compare your options and do your research to make sure you’re applying for the right loan. A loan is a serious undertaking and should be considered as such when you apply.
Can I take out multiple personal loans at the same time?
Yes, some lenders allow you to take out a second loan, once you pay off part of the initial balance and establish a history of on-time repayments. However, it is not always a good idea.
For one, you might not get the best deal. Lenders base how much you can borrow, the interest rate and loan term on factors like your credit score and a debt-to-income ratio (DTI). If you recently took out a loan, your credit score has already taken a hit due to a credit check, which may make you appear more of a risk.
The fact that you recently took on debt also increases your DTI, which lenders look at to determine your ability to repay a loan. Like low credit scores, borrowers with higher DTIs are considered riskier and may have difficulty receiving approval for a loan with a competitive interest rate.
Beware of over-borrowing
You might want to rethink a second loan for another reason: Over-borrowing. Borrowing more than you need increases your monthly payments and the overall cost of the loan, making it more difficult for you to pay off the debt. It can also spark a cycle of debt if you become dependent on loans as a source of capital.
Avoid over-borrowing, by calculating precisely how much money you need before applying for a loan and only asking for that amount.
What about applying for multiple loans at the same time?
Applying for multiple loans at the same time could hurt your credit score. However, the damage it does depends on how far you get in the application process, the loan type and how much time you let pass between applications.
If you’re interested in comparing rates, lenders may allow you to fill out a pre-approval application to gain insight into what kind of loan you might get if you continue. These typically use a soft credit pull, which has no impact on your credit score. If you continue further with the application, it involves a hard credit check, which can temporarily damage your credit.
The exception is ‘rate shopping’, or applying for multiple loans over a short period, especially vehicle loans, student loans or mortgages. If you apply for approximately the same amount of money with similar lenders, credit bureaus often recognise that you’re trying to find the best rate, not attempting to take out multiple loans.
In this case, credit reporting agencies count all the hard inquiries from lenders within a specific period as one. Also, the queries won’t appear on your credit report immediately, which allows you to look for multiple loans with your original credit profile.
When should I not use a personal loan?
A personal loan can offer lower rates than credit cards and other forms of debts. But it might not be the best solution under a few key circumstances.
If you can easily save the money
Have your eye on a luxury item or feeling the itch for an exciting holiday? If your needs aren’t immediate, you might want to work out how much your repayments would be and save that amount each month instead. Otherwise, you could be paying for your splurge many years later.
If it’s a bad investment
Are you thinking of borrowing for home improvements or another investment? Make sure it’s bound to add value in the long run, otherwise you could be left paying interest on an improvement that ultimately lost you money.
If your income and employment aren’t stable
Taking out a personal loan when your finances are unsteady could hurt you in the long run. If you have reason to think your income or employment situation might change for the worse, consider cutting back on expenses or putting money away in a high-yield savings account instead.
The questions we’ve been asked about personal loans
Question
Answer
How quickly can I get the money from my personal loan?
Different lenders will have your loan amount transferred to you within varying amounts of time. Some banks are able to offer existing customers same-day personal loans and some payday lenders can have loan amounts transferred to new customers within an hour of approval. If you are in need of the cash as soon as possible, it is advisable to check to see how long it will take to receive your loan amount before you apply.
What is the average interest rate on a personal loan?
At the time of writing the average rate is 14% p.a. However, it is important to keep in mind interest rates can fluctuate from 6.9% p.a up to 30% p.a. (or more depending on your credit score). The rate will depend on whether the loan is a fixed or variable rate; secured or unsecured.
What can the lender do if you fail to repay a secured personal loan?
Secured loans, as the name suggests, means you offer something of value as security on the loan. If you don’t pay, you may find the bank will repossess your car (or any other item offered as security) and sell it.
What’s the best personal loan?
Unfortunately, there is no easy answer to this question. The best loan for you will depend on what you need and also what loans you are eligible for. You can use the comparison tables available on finder.com/nz to compare similar loans and select the most competitive loan option that offers the features you want. If you are eligible, then you can apply.
Can I pay back my personal loan early?
You may be able to pay back your personal loan early but it depends on the conditions of your loan. Most variable rate personal loans allow for additional repayments or paying back the loan ahead of time without penalty.
I’m having trouble repaying my loan – what do I do?
If you are having trouble repaying your loan you need to get in contact with your lender as soon as possible. They may be able to organise a payment plan with you, or offer some sort of option to help you manage your repayments. You also have the option of getting in touch with the Citizens Advice Bureau on 0800 367 222 and they will put you in touch with a non-profit organisation that can help to organise your budget.
Can my personal loan be funded on the same day?
Same day personal loans are a relatively new feature, and require you to meet the criteria set out by the bank. Some require you to be an existing customer or apply by a certain time of day. If you are approved, you will get access to your funds on the same day. Find out what lenders offer this feature.
Can I be approved for a loan if I work part-time or casually?
Yes. Many lenders will consider you for a personal loan if you work part-time or casually. Check if you meet the criteria.
What is loan pre-approval?
Pre-approval is a conditional approval of a personal loan. To arrange pre-approval, you still have to apply to a lender and they agree to provide you with finance as long as certain conditions are met. Pre-approvals usually last for three to six months. One common type of pre-approval occurs when you want to purchase a vehicle. The lender agrees to provide you with a certain amount of money but will not give you the funds until you purchase the vehicle. The conditions that need to be met will include that the vehicle is of a certain value. Also, the lender is likely to send the funds directly to the car dealer, not you.
I didn’t receive approval for the amount I needed. What do I do?
You have the option of taking the personal loan and using the funds or rejecting the loan offer. Bear in mind the lender will list the credit enquiry on your credit report and affect your next loan application. Excessive credit enquiries in a short space of time can negatively impact your credit score.
Do I have to tell the lender what I need the personal loan for?
Yes. The lender has a section in the application where it will ask this. You either need to select from a drop-down list of loan purposes or note down the loan’s use and it forms part of the lender’s decision.
Do I have to tell the lender what I’m using the money for?
The answer to this question depends on what type of loan you are applying for. If you are wanting a secured car loan then all details of the car, finance agreement and registration must be given to the bank or lender before you receive the money. However, if you are getting an unsecured personal loan, then you only need to give a general idea of the loan purpose to the bank. If you are consolidating debts, you will have to give details of your other loans and credits to the institution.
Can I buy a car with a personal loan?
You can consider an unsecured personal loan or a secured personal loan if you are buying a car. Personal loans can be used for purchasing a car, especially if you want to buy an older model or a car that does not fit with a lender’s criteria. An unsecured personal loan could be used for a car, but it is important to keep in mind that unsecured personal loans come with a higher interest rate than a loan secured to a vehicle.
Can I take out a personal loan to cover a valuation shortage or to pay Lenders’ Mortgage Insurance?
If you have been approved for a home loan that falls short of your chosen property’s valuation you may be considering if it is worth applying for a personal loan. Personal loans might also be on the table to cover Lenders’ Mortgage Insurance (LMI). While this is an option, you need to consider if you will be approved for your personal loan (consider the home loan you have been approved for); and whether you can afford the repayments in addition to what you are paying towards your mortgage.
What’s the difference between a credit union personal loan and a bank personal loan?
Credit unions are different to banks in that they operate on a not-for-profit business model. Typically you will find there are not as many fees or charges with a credit union loan, which means the interest rate may be lower. Credit Unions are governed by the same regulations as banks so it is just as safe to apply for a credit union personal loan.
Why has the interest rate on my personal loan changed?
If you have a variable rate personal loan, then you may notice your interest rate goes up or down. This could happen due to a range of factors but is mainly based on what the Reserve Bank of New Zealand dictates the official cash rate to be. If you have found you rate has gone up, it may be a good time to consider refinancing your personal loan.
Should I take out a personal loan or a credit card?
Credit cards can give you convenient access to a line of credit and you do have the choice between a personal loan or credit card for a variety of purchasing needs. To work out which option is best for you think about how you need to make the purchase (if it is in cash you will be charged a cash advance rate with a credit card); how you want to repay your loan (you can choose to just repay the minimum amount with a credit card); and what you are purchasing with the funds.
What is the difference between short term loans and personal loans?
Whilst a short term loan, also known as a payday loan, is a type of personal loan there are a range of differences that make this type of lending completely different. Personal loans are generally taken out over 3 months to seven years, whereas a payday loan is usually between 7 days and one year. Payday loans are also for smaller amounts – between $100 and $5,000 – and are available to those with bad credit.
How much should I borrow?
Personal loans can vary greatly in size from $1,000 and upwards of $80,000. If you are purchasing an asset such as a car, keep in mind you may need funds to cover insurance. Many banks and lenders consider up to $20,000 and $30,000 to be a medium sized loan. If you are only going to borrow between $10,000 and $20,000 then a small personal loan may suit your needs better.
What is loan protection insurance and do I need it?
Many lenders offer loan protection insurance as an add-on to your personal loan. This insurance can pay the minimum repayments on your personal loan if you lose your job; or cannot work because of illness or injury. You usually apply for the insurance when you are approved for the loan but you may be able to get the insurance further into the loan term.
Can I get a personal loan for my solar panels?
There is increasing demand for loans from people like you who want to protect mother earth. Kiwibank offer a “Sustainable Energy Loan Programme” that can be added to a mortgage you already hold with them. They also offer $2,000 over 4 years towards the system.
How much do you have to earn to get a personal loan?
Most lenders will have a minimum income you need to earn to be eligible, but others will only require that you are employed or have the means to repay the loan. Minimum incomes can range from $14,000 p.a. to $50,000 p.a. but there are low-income personal loans available.
Does my credit score affect my ability to get a personal loan?
Lenders use a variety of information to determine your eligibility for a personal loan, including your credit rating. The information on your credit file includes negative information such as defaults and bankruptcy listings; and personal information such as your name and address. From 2012 onwards, New Zealand credit agencies have included positive information about your credit history, such as regular credit card and mortgage repayments.
You can check your credit score for free with finder to get a better idea of where you stand.
Will my credit score affect my personal loan interest rate?
Some lenders offer different interest rates to different borrowers depending on how risky they are to lend to. This is what is called “risk-based pricing”. Lenders that use risk-based pricing may use your credit score as an indicator of how risky you are to lend to.
You can check the information in the finder.com/nz personal loan comparison tables to see what lenders consider when calculating your interest rate, what the interest rate range is (ie the minimum and maximum rate you can receive) or if the interest rate displayed is the rate you will get if you are approved for the personal loan.
How do I repay a personal loan?
Once you have successfully applied and received your funds, it is important to keep your loan repayments up to date. If you have applied for a loan with the bank your everyday account is with, then you will probably have an automatic direct debit set up. If your loan is with a separate institution, it is a good idea to set up an automatic transfer, via internet banking, a few days before your due date to allow for processing time. You will be able to check your balance, interest rate, repayment dates and schedules. You should login to your loan account regularly to check notifications and payments details. If you want to make additional payments then you could do this by internet transfers or if your bank allows it, over the counter deposits. If you miss a payment due to insufficient funds then it is important to call the bank and attempt to rectify the situation as soon as possible.
Can I use a personal loan for equipment finance and small business needs?
Yes, personal loans can help with your business needs too. You can access personal financing to help cover business needs — everything from trucks to equipment can be purchased or even leased with a personal loan. The same is true even if you have bad credit. Business vehicles including company cars, trucks or vans can all be financed with a personal loan. If your business requires specific equipment to purchase or lease, such as forklifts, earthmoving equipment, workshop machinery or even office equipment, you can take out a personal loan to help cover the costs. You won’t have to hurt your business’ cash flow to make the purchase.
How can I find a cheap personal loan?
Personal loans are never advertised as being ‘cheap’, but some loans will work out costing you less than others. To find a cheap personal loan, look at the interest rates, establishment fees and ongoing fees. Compare the total payable amount that includes all interest charges and fees between different lenders. It’s possible to save hundreds or even thousands of dollars in interest and fees depending on the amount of the loan if you do your research.
Am I able to do this for every car contract?
Some car traders do not allow you to have cooling-off rights. This is important to know before you try and break the contract due to the cooling off period.
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over six years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at the IT Journalism Awards. Elizabeth's passion is writing about innovations in financial services (which has surprised her more than anyone else).
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