Getting a Payday Loan in New Zealand
Times are tough. Stretching a pay cheque from week to week is a struggle for a lot of New Zealand families. When emergencies arise – from unexpected dental fees to car troubles and everything in between – finding the cash to cover costs can seem impossible. That’s why so many kiwis (more than 200,000 every year, according to MBIE) turn to payday loans. They’re fast and easy, with hassle-free applications, quick drawdowns, and fewer background checks than other credit options.
But what are payday loans all about? Are they right for you? And if they are, what should you be looking out for when considering your lender options?
What Are Payday Loans?
Payday Loans, generally speaking, do what they say on the tin. They’re loans given by third-tier lenders to tide you over until your next payday, the expectation typically being that you will pay the lender back from your next few pay cheques.
Because payday loans can be accessed so quickly, and often by those with bad credit ratings and low incomes, they generally come with much higher annual interest rates.
Payday loans are intended as a short-term lending option. The amount you can borrow from a payday lender is relatively small – usually from $50 to $5000.
The Benefits of Payday Loans
Payday loans come with significant risk, and you shouldn’t enter into a payday loan contract without being very sure you’ll be able to make your repayments. The consequences if you can’t? Exorbitant interest, mounting fees, pushy debt collectors, and a spiral into higher and higher levels of debt.
Of course payday loans do serve a purpose. They’re generally quick, easy, and require a lot less paperwork than bank-based personal loans. Got bad credit? Bank won’t lend to you? It’s often possible to get a payday loan without a credit check.
What are the Risks of Payday Loans?
At the risk of sounding repetitive, we must stress: Payday loans can be dicey. If you’re already finding finances tight, adding another commitment to your upcoming pay cheque is not going to make life any easier. Payday lenders are not benevolent aunties wanting to slip you some pocket money. Lenders are in the business to make money, and that means they WILL enforce high interest rates, fees, strict deadlines, and penalties. And – like in any sector – there can certainly be sharks. Swimmers beware.
What to Look for When Comparing NZ Payday Loans
There are seven key things you should bear in mind before choosing a payday loan lender. Take a read of the points below, then scroll up to compare lenders. Knowing what to look for could save you thousands, and help you get out of debt much faster.
1) Which NZ Payday Loan has the Lowest Interest Rate?
The average home loan interest rates are hovering around 4%. Personal loans range from 11 to 22%. Payday loans? They can be anything from 150 to 650% or more!
One of the first things you should check when comparing payday lenders is the interest rate they charge. Even a relatively low payday loan interest rate of 100% could see your $1000 loan turn into a $2000 loan in twelve months’ time. With a 600% interest rate? One year later that $500 debt is a $3,000 burden.
2) Which NZ Payday Loan is Least Likely to Trap you in a Debt Cycle?
There’s been plenty of media coverage in New Zealand lately about payday loans, and numerous reports of people trapped in spiraling debt because of out of control interest rates.
Take the case of this Gisborne woman, ‘Sarah’. She borrowed $400 online from a payday lender to buy birthday gifts for her kids, expecting her financial situation to improve. When it didn’t and she missed a payment, she quickly fell behind and was unable to catch up again. She found herself choosing between paying for the power bill and paying for food.
Then there’s this horror story of a 19-year-old who needed a computer and printer way back in 2000. According to the Salvation Army, the woman took out a loan for $1000, but in 2019 was still being chased by debt collectors for $1833, even though she’d already made $4000 in payments to her lender. At 37 years old, this woman is still paying the price for a relatively small loan taken out as a teenager.
The moral of the story? Find a reputable, responsible lender who won’t let you borrow what you can’t afford, and who can work out a payment plan that won’t have you trapped in debt for years to come.
3) Which NZ Payday Loan has the Least or Lowest Fees?
New loan? Fee.
Loan extension? Fee.
Late payment? Fee.
Cancelled direct debit? Fee.
This is what it can feel like as a payday loan borrower. With every fee, the balance of your loan account keeps climbing and climbing, soon becoming the Everest you just can’t summit.
Payday lenders are infamous for their ability to charge a fee for anything. Before you take out any loan, you should do your homework about which fees might apply to you. If you suddenly have to pay an extra $150 on top of your existing repayments, you might find you’re unable to meet your obligations and get stung by even greater repayment penalties.
4) What is the Term of the Payday Loan?
Once you’ve considered the interest rate and fees of a potential lender, it’s important to consider the term of your loan, and to choose a term that will lead to the least interest possible.
If a lender charges 600% per year in interest, and you decide to take out your loan for a full year, then you’ll be paying $6000 on your $1000 loan! Although the fast money may be tempting, it’s vital you crunch the numbers and decide if the loan term, along with interest rates and fees, will put you in a worse financial situation down the track.
If you’re feeling trapped by your debt and in a bad financial situation, a sit down with someone from the Citizen’s Advice Bureau might be a good place to start.
5) How Quickly Can You Get Money with an NZ Payday Loan?
Another important comparison to bear in mind with payday lenders is their turnaround time. If getting money immediately is necessary, then you’ll want a lender with a quick application process and an immediate payout. Most payday lenders can get the money to you within 24 hours, but others could take a little longer. Always ask before signing a contract.
6) Which NZ Payday Loan is Most Sympathetic to Late Payments?
We’ve all heard of the repo man. The bad news is, he’s not just the stuff of Hollywood movies. Payday lenders can be all smiles until you sign the contract, but if you’re facing financial difficulty, have unexpected hardship, or simply want to discuss your repayments, you may find they’re suddenly a little less interested in being your friend.
Always check the penalties for late payments before signing up to a specific payday lender and understand whether they will be open to changing your term, repayments, or conditions once you’re signed up. A flexible lender could mean the difference between a quick, easy repayment of your loan, and decades of spiraling debt.
7) What will my Total Repayments be with This Lender?
Don’t look at a lender’s interest rates or fees in isolation. Interest rates may seem low, but extortionate fees can make that particular lender a worse option than one with a much higher rate. Ask your chosen lender to tell you what your total repayments would be, including interest and fees. If it seems too high, walk away.
Are Payday Loans Regulated in New Zealand?
Not yet. But change is coming.
Unlike in most other developed countries, payday loans are largely unregulated in New Zealand, meaning there are a fair few cowboys, and plenty of unwitting borrowers being stung by dodgy practices.
The Credit Contracts Legislation Amendment Bill is currently going through Parliament and contains new measures to protect payday loan borrowers. The Bill aims to ensure that payday loan users are never forced to repay more than double the amount they initially borrowed. It will achieve this by setting legal caps on loan interest rates and will limit the amount that payday lenders can earn from loans.
What Alternatives Are There to Payday Loans in New Zealand?
A personal loan with your bank is a good place to start if you need a little money for a short period of time. Personal loan interest rates range from 11 to 22% and because you’re dealing with a reputable lender, you can rest assured that they’ll only lend you what’s affordable and manageable.
If you don’t have any joy with your bank, a credit union may be able to help, and is a safer bet than a payday lender.
If you have an existing credit card or think you could get a credit card from your bank, this may be a better option than taking out a payday loan. With credit card interest rates around 22%, they work out a lot cheaper than a payday loan with a 600% pa interest rate.
If you’re looking for a loan to cover an impending bill or other fee, consider approaching your service provider to see if they can help you out with a payment plan to get your through the rough patch.
Likewise, a call to a friend or family member, while difficult to make, can be a much safer and cheaper path than a payday loan. Just make sure you agree in writing about the terms of the loan, so everyone is on the same page about when it will be paid back.
Rather not borrow from family? Consider asking your employer for an advance on your pay. They may or may not be open to this, but getting your pay sooner cuts out the payday lender middleman.
Payday loans sometimes feel like the only option when life gives you lemons. But if money is already tight, and you commit to paying yet another bill with your next pay cheque, then taking out a payday loan could – and often does – lead to truly sticky situations for borrowers.
If you do decide to go ahead with a payday loan, take care to pick one that offers a fair interest rate, that won’t sting you with too many fees, and that takes a flexible approach to your repayment schedule.
Hopefully with a little bit of help, you’ll soon be turning those lemons into lemonade.
Do Payday Loan Lenders Do Credit Checks?
Sometimes yes, sometimes no. For some people, one of the main attractions of payday loans is the fact they’ll overlook (or not even check for) a bad credit score.
Can Beneficiaries Get Payday Loans in New Zealand?
Again, it depends. A lot of lenders refuse to lend to beneficiaries because they demand that a certain percentage of repayment money does not come from government sources.
Can I Get a Payday Loan if I Work Part Time?
This depends on the lender. Most payday loan lenders have a minimum income threshold. Others may refuse you if you are not in permanent, full-time employment.
Do I Need to Give a Reason for Wanting a Payday Loan?
Most payday loan lenders don’t require you to give a reason for your loan application.
Am I Eligible to get a Payday Loan?
Different lenders have different eligibility criteria. Generally speaking, you’ll have to meet these requirements to be eligible for a payday loan:
· Be at least 18 years of age
· Be resident in New Zealand
· Receive more than $400 per week, after tax
· Be in permanent employment
· Have proof of your address (usually a bank statement or utility bill)
· Have a mobile phone number and/or email address
Will Payday Loan Lenders Contact My Employer?
Nine times out of ten, a payday lender won’t need to contact your employer. Occasionally though, they will want to do so to confirm that you are indeed working full time. Lenders should never contact your employer without first informing/asking you. If you’re not comfortable with this, you can ask the lender not to make contact, and can cancel your application.
How Soon Can I Get Money with a New Zealand Payday Loan?
Many lenders offer very fast turnarounds on payday loans. Some can get the money to your account less than 24 hours after you have submitted your application.
Will my Payday Loan Application Show on my Credit Report?
Yes, it will, and many finance companies and banks will hold that against you in the future. A payday loan suggests that you were declined by other, more reputable lenders. A payday lender listed on a credit report can be considered more of a negative than a bad credit rating.
What if I Can’t Repay My Payday Loan?
If you’re experiencing financial hardship and don’t feel that you can make your repayments, first try speaking with your payday loan lender to see if you can work out a payment plan that relieves the financial squeeze. A warning though – payday lenders have strict rules around repayments and are unlikely to budge, even if you find yourself in a bad situation.
If you are struggling and would like free financial counselling, you can call 0800 345 123, the MoneyTalks helpline operated by FinCap.