Chances are in the past couple of months you’ve seen or heard some rather scary stories about so-called ‘pay day lenders’.
TV news and social media ran stories in June about how the Commerce Commission is taking one business to the High Court of New Zealand over allegations of irresponsible lending.
Naturally, the story has caused everyday Kiwis to pay attention to this business, and others like it.
If the story worries you…
Or makes you second guess whether it’s smart or safe to borrow money in New Zealand right now…
Good.
Because here at Loanplace we think the more educated and aware you are about borrowing money, the better.
The better it is for you, for businesses lending money… for the whole industry.
So, in this brief post, we’re going to address a few important points.
The point isn’t to sell you anything (though of course our business is providing fair finance to everyday Kiwis — more on that here).
Our objective here is to explain what’s going on with the Commerce Commission’s case… and show why the kind of lending practices they are aiming to crack down on are, in fact, bad for everybody in the finance industry.
‘Finance Company’ Does Not Equal ‘Pay Day Lender’
547.5%.
That’s the interest rate some people have been agreeing to when they’ve taken on what’s known as a ‘pay day loan’.
If someone is in the position where they need to borrow money at an interest rate that high… how can they reasonably be expected to repay more than SIX TIMES that much money?
It’s pretty basic.
If you find a lender offering money at an interest rate like that, you must understand the repayment demands.
For now, this sort of thing isn’t illegal. That’s probably going to change very soon.
But in the meantime, we advise you not to accept any loans at interest rates that could make your financial situation worse, not better.
(Loanplace doesn’t ever approve a loan with an interest rate higher than 25%.)
Why We’re HAPPY There Are People Complaining About Us Online…
If you look around our social media pages, you’ll find people commenting that Loanplace is “a scam” and complaining that we’re discriminating against people by not lending money to those who don’t have enough income or assets.
This is criticism we’re happy to have.
Here’s why.
Loanplace exists to provide fair finance to everyday Kiwis with friendly, fast and personal service.
We aren’t here to arrange finance for people who can’t afford it…
Whose financial situation means a loan would actually hurt rather than help them…
Or to force those who don’t understand the rules of borrowing money to pay back four, five or six times the amount they borrowed.
In other words…
We feel it’s far better to have people complaining that we won’t approve their finance application that to have customers who can’t afford to make the repayments on their loan.
If A Loan Is Bad For You, It’s Ultimately Bad For The Business You Borrow From
A high interest loan that takes you years to repay and potentially damages your credit rating is, obviously, not the most sensible option.
But it’s not just bad for you if you can’t afford to pay it back.
It’s actually bad — over the long term — for the business who lends you the money.
Think about it.
If a business approves loans for 100 customers and only, say, 10 of those customers actually manage to repay it, then the business is in trouble.
This is why you find companies like those the Commerce Commission is targeting charging massive interest rates — they’re trying to cover their costs and protect themselves from customers failing to pay their loans back.
To us, that’s a pretty bad business model.
Not just because it puts customers in financial difficulty.
But because it creates uncertainty and unsustainable conditions for the business.
Our model is different.
We only approve loans for customers who understand their repayment obligations and have a reasonable chance of paying back their loan without entering significant financial hardship.
Our team of professional finance consultants don’t approve loans for everyone (see the complaints on our Facebook page).
In fact, we’re so serious about providing fair service to our customers and creating a sustainable business that we’ve invested in creating proprietary software that allows our team to accurately determine whether it’s sensible to offer a loan to a customer.
We also specialize in debt consolidation.
This involves looking at our customers’ existing loans and repackaging them into one debt at a lower interest rate.
In other words, we believe that what’s in our customers’ interests is in our interest (and that insanely high interest rates are not good for you OR us in the long term).
So, if you’ve seen the stories about the Commerce Commission’s case against ‘pay day’ lending in New Zealand…
And that’s made you think carefully about the rules and realities of borrowing money…
Great!
We encourage all our customers to familiarize themselves with the conditions under which they borrow money from any third party.
For more information, please check out this article about Responsible Lending: https://www.consumer.org.nz/articles/responsible-lending
Sources:
https://www.tvnz.co.nz/one-news/new-zealand/moolas-alleged-interest-rate-breaches-shows-system-not-working-like-should-finance-expert
https://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=12247594
Posted in Business Loans, Car Finance, Debt Consolidation, Mortgages, Personal Finance
Often in life you can find yourself in a bit of a pickle when it comes to money. Maybe some unexpected bills came up that you were not prepared for. Perhaps you needed to buy a car to get to work. Whatever the reason, it happens, and there are a few things you can do to help get yourself into a better situation fast!
If you have multiple debts, say a credit card, a hire purchase and an overdraft, it is important to pay these off in the correct order so that you can get out of debt fast and save the most money.
So the first thing to do is find out what the interest rates are on each of your debts. Often credit cards or payday loans are going to be the one with the highest rate.
Now you have figured out the highest rate debt, you need to pay off as much as you can each month rather than just the minimum payment. The reason for this, is everyday interest is calculated on your debt, so the lower the amount of debt on each day, the less interest you will be charged.
In the long run, this means you end up paying the debt off faster and also it costs you less because you are paying less interest.
Did you know that different credit card providers offer an interest free period when you transfer the balance of a credit card from another bank to them?
Often the big banks have a 6 month or even a 12 month interest free period when you transfer the balance. That means on a credit card debt of $5000 at an interest rate of 19.95% you would save nearly $500 over a 6 month interest free period.
Now of course this only helps you if once you transfer the balance, you pay off as much as you can each month. Don’t just pay the minimum amount. This is to drop the balance as much as possible while in the interest free period.
If you get to the end of the interest free period and still owe money, nothing is stopping you from doing another balance transfer to a different bank to take advantage of another interest free period.
Another option is to get a ‘Debt Consolidation’ loan, which brings all your debts together into a single, easy to manage repayment.
Often this winds up to be the most manageable solution for someone with many debts, as it makes the monthly repayment much smaller and can often be at a lower average interest rate.
When it comes to personal finance there are a lot of different approaches and ideas out there and often it can be hard to tell what is good advice and what isn’t.
Below are 5 of the most common myths around personal finance.
Often people confuse these two concepts as being the same thing. Surely people who earn a lot of money are wealthy right? Well that’s not always the case.
Many people earn more than enough money to become wealthy they simply do not hold on to the money they earn and end up spending it on various unnecessary things.
Likewise even on a low income, if most of the money is saved or invested that person can find themselves with a very healthy bank account.
There is a fantastic article on this very myth here.
You might have been warned about credit cards in the past by friends or family. They usually tell you some horror story about a person getting into mountains of debt at a high interest rate.
Now that scenario can definitely come true but with some financial discipline you can make credit cards work in your favour.
First of all, having a credit card and paying it off in full every month, not only incurs zero interest for you, but also helps you build up a healthy credit history that can help you with getting finance in the future like a car loan or a mortgage.
A second use of credit cards that not many people are aware of are their ability to earn you rewards points. Certain credit cards come with a rewards points scheme such as a frequent flyer program or flybuys.
How this works, is every dollar you spend on the credit card usually translates into 1 reward point.
So one strategy you might use is if you purchase everything on your credit card that you would’ve usually purchased on your eftpos card you will now be getting rewards points which build up very fast.
But wait, won’t that cost me interest!? If you pay off your credit card in full every month, you do not get charged any interest at all. That means as long as you stay disciplined, you will be earning rewards points absolutely free!
Often people say, that because they have a low income, there is no point in saving money. This couldn’t be further from the truth!
Even saving $20 a week would leave you with just over $1000 at the end of the year. Imagine how many presents you could afford with an extra $1000 at Christmas time.
Saving money, like anything else, is a habit. Once you get in the habit of putting money aside every week, it quickly snowballs and you end up building quite a healthy savings account.
A good strategy can be to put aside a certain percentage, say 10% of your pay into a savings account then as you earn more money, you maintain the same percentage. So if you earn $500 a week now, that’d be $50 into savings.
It’s never to late to start saving money and the sooner you do, the more wealth you will create.
This myth has been hanging around for many generations. It stems back to when the housing market was in very different shape and it often was the case that buying a home was a good investment.
In reality, people do not factor in all the additional costs to home ownership such as interest payments, repair costs, legal fees, rates and insurances, the list goes on.
Renting on the other hand, puts all that responsibility on the land lord and the person renting the house simply has to worry about paying the rent.
If you don’t like the house or the area anymore, you can simply up and move in a relatively short time frame. Selling a house can take a minimum of 30 days up to many months, if you can’t find a buyer.
Your monthly rent is also often much cheaper than the monthly mortgage payment for the same house. This allows you to use that saved money to put into better investments.
Only wealthy people invest in stocks or own investment properties right? Wrong.
Anyone can invest their money and you can start with a relatively small amount too. Often the first and best place to start, is investing in a whole market instead of a single stock.
This allows you to spread your risk and over the long term, usually beats a savings account interest rate. This can be done by purchasing shares in an ETF (Exchange Traded Funds), there is a fantastic guide here on ETF’s.
Like saving money, investing is a habit. As you form your good savings habit, you can easily move into investing as well.
Watching your money grow overtime is very exciting and even if you are only growing $100 you will still get great satisfaction out of watching it grow bigger!
Having to pay off multiple debts at once can often become overwhelming and easily spiral out of control. Perhaps you have a credit card payment due as well as your car loan payment and by the time you pay the credit card, there is no money left over to cover the car loan as well.
Consolidate means to combine things into a single more effective whole. When it comes to a debt consolidation loan, that means we are bringing all of a persons debts into one single more effective loan.
This usually results in a much lower interest rate than all of the individual loans and also makes it very easy to pay off as there is only one single repayment.
There are a few very good reasons why you would do this. Lets take a look at them.
Saving Money:
A debt consolidation loan can reduce the overall interest you are paying by bringing high interest debt into a low interest loan. It can also save you money by having less fees to pay. Often payday loans and credit cards charge you additional ‘payment’ fees or card fees.
Makes things easy:
Meet Sam. He always gets paid his wages monthly on the 20th of each month. His credit card payment is due on the 16th of each month and the hire purchase loan is due on the 23rd of each month.
He finds it easy to pay the hire purchase loan off, as it always comes just after he gets his monthly pay. But by the time the 16th rolls round, he often struggles to get the money together to pay the credit card and is worried he will start missing payments.
If Sam got a debt consolidation loan for both of these loans, he would now only have one single repayment that he can line up with his pay on the 20th of each month.
Now as soon as he is paid, he can pay his loan payment as well, which means he can live stress free for the rest of the month.
He also has flexibility with the loan term and could decide to spread it out over a longer term than previously which would allow smaller weekly repayments.
Helps your Credit Rating:
By having only one monthly repayment, it means you are less likely to miss a repayment which keeps your credit rating in good health. Also having only a single loan repayment in your bank statement history, looks much better to potential lenders in the future.
Becoming Debt Free Faster:
Because you would only have a single repayment, it makes it much easier to plan ahead and determine when you can become debt free. Use our loan calculator to see an estimate on what repayments might be.
Here at Finance Today, debt consolidation loans are our speciality. If you would like to know more, get in contact with us and one of our friendly team members can answer any questions you might have.
Posted in Debt Consolidation, Personal Finance
Getting your first loan can be an exciting time, whether you are getting it for your first car, a holiday or even to consolidate some debt.
But this time can also be a cause of stress if you are not prepared for what is involved in applying for a loan.
The main thing you need to do before applying for a loan is checking if you meet the criteria. Every lender has different criteria, so it is important to understand this before you send in an application.
Usually you would have to meet the below:
Now of course some of these criteria can be by-passed in certain situations. For example, if you do not have an appropriate weekly income, sometimes a co-borrower can be used to meet the criteria instead. But more on that later.
The amount of money you want to borrow is another big factor on whether or not a lender will give you the money. Personal loans are supposed to help you out in the short term but not harm you in the long run.
If you wanted to borrow $50,000 but only earn $200 a week as a part time employee, the lender would not approve the loan as you would unlikely not be able to afford to pay it back.
A quick rule of thumb here is once you have calculated the repayments per month, if you still have at least $900 left over after all your expenses (food, rent, power etc), the lender will likely approve your loan.
You may have heard before that you need a good credit history in order to apply for a loan, but what is a good credit history and how do I get one?
An easy way to build up a credit history is to have a monthly utility bill in your name that you always pay on time. For instance you might have a phone bill for your mobile phone that you pay every month.
This shows to a potential lender, that you are reliable at paying money that you owe and gives them more confidence in lending you the money that you want to borrow.
Is no credit history a good thing? Unfortunately it doesn’t help you get a loan as now a potential lender has no way of seeing if you have been reliable at paying bills in the past.
So if you currently do not have a credit history, that is something you will need to start working on.
When you apply for a loan, most times a lender will want to see your last 3 months of bank statements. This is so they can see your spending habits and your general approach to finance.
In order to help them see your good money habits, make sure you have your salary always put into the same account so it can easily be seen you are getting paid the amount you say you are.
Make sure you do not overdraw your account, this way you show you have good budgeting skills and know how to manage your finances well. This will give a lender even more confidence in your application.
Have a savings account and show a good history of putting money aside into this account. This shows your budgeting skills and that you are able to plan ahead.
If you think you have all the above covered, you are ready to apply for a loan. Here at Finance Today we have an expert team that can help you get the finance you want at a fantastic rate.
