Often, when we hear the word loan, we raise our eyebrows. There’s always a catch; In fact, in New Zealand, it’s quite common to only think that they should only be considered when other options are exhausted. The truth is, unless you have a cash-filled pool or a magical fairy somewhere, you would, at some point, have to use money when you’re a little cash-strapped. Borrowing has been around as far back as the existence of money. It’s what people do; It’s how we take care of immediate needs without having to overstretch resources. When emergencies arise, they are the go to.
Payday loans — What are they?
Payday also known as cash advance loans, are a type of short-term borrowing that involves a lender extending interest credit based on a borrower’s profile and income, with lenders charging high interest rates for immediate credit meant to sort out urgent financial obligations. It can be used to fix the car, clear medical bills, or other needs whatsoever — a quick way to get additional cash when it’s needed without hassles of conventional banking.
How does Payday Loans Work in New Zealand and why are they so infamous?
At certain times in our lives, we all have unforeseen emergencies, cash advance payday loans are easy fixes to immediate problems. Remember the last time you had to get groceries, but you ran out of cash, or the last anniversary you completely forgot and had to plan at the last minute. When things like this happen, you are left with little time to take care of specific obligations while the next payday is still a few weeks ahead.
That’s precisely where payday loans come in, with these easy access loans, there is no waiting in line, having your credit records checked or filling any unnecessary paperwork. In fact, it’s an online process, so you don’t even leave the comfort of your bed. It’s very possible after agreeing with the lender’s fee which is usually about NZ$15 to NZ$30 per NZ$100 and permitting the lender to debit the funds from your account later, to get approved and disbursed on that very day.
If payday loans sound this good and accessible, why are they infamous?
It’s always easy to get money and spend it, but then it comes time to make good on the debt. Payday loans typically charge high-interest levels and hidden provisions from borrowers. If you pay back within the due date, usually spanning a period of two to four weeks, you’re done. But of course, this is not always the case; in most cases, when you are unable to repay fully, you may be able to get an extension.
The loan can be renewed by the Lenders, providing borrowers with the opportunity to pay only the fee balance and extend the due date with another fee. For instance, if you borrowed NZ$400 and the fee was NZ$60, it will cost an additional NZ$60 to roll the debt over for two more weeks. At that stage, you’ll have paid NZ$120 to the lender before you’ve paid the original loan amount.
Knowing how much it will cost to borrow against your paycheck should raise a red flag, but seeing how the fees translate into an annual percentage rate might shock you. To put things in perspective, take a look at this rough estimate showing interest and fee rates as compared to the loan amount over a year.
Say, Principal loan amount: NZ$400 and Interest amount/finance charge: NZ$60
Repayment due in 14 days:
Divide the finance/interest charge by the loan principal: NZ$60 / NZ$400 = 0.15
Multiply the result by the number of days in a year: 0.15 x 365 = 54.75
Divide the result by the repayment term length: 54.75 / 14 days = 3.910
Convert into APR by moving the decimal point two spaces to the right: 391% APR
That translates into an approximate 391% APR on an NZ$400 loan with NZ$60 fee. If you compare with credit cards, which mostly has interest rates of about 25%, it really shows the ludicrousness of the process. Not to mention other penalties that may be acquired during the course of the loan payment.
Most borrowers renew their loans so much that they pay more in fees than the original loan amount.
How payday loans are regulated in New Zealand
Payday Loans are a legitimate credit industry. As such, each lender is required to have a license to operate. Payday lenders must abide by both federal and state laws. When there are no clear cut regulations, there are several bodies created to maintain level-headed operations within the industry. For instance, As required by the federal Truth in Lending Act, payday lenders are required to disclose the dollar amount of the finance charge and the corresponding APR in writing.
In New Zealand, legislation comes in the form of the Credit Contracts and Consumer Finance Act 2003 (CCCFA) instituted in 2005 and currently under review for further change to encourage and target responsible lending practices.
With regards to administering and enforcing the CCCFA, the responsibility of this was taken on by the Commerce Commission. However, while the Commerce Commission can investigate lenders that are suspected to have breached the CCCFA, they do not take on the fight for individual debtors, who should seek to make a complaint under the Independent Resolution scheme of which all lenders are required to be a member of under the Financial Service Providers Act.
The problem with New Zealand has been much the same as pretty much everywhere where efforts were made to try and limit the amount of regulation and restriction imposed, in an attempt to encourage free trade and competition.
However, as in most cases, with half thought out regulation, this creates inefficient pockets and many conductors, which ultimately turns to a large grey area that eventually needs to be addressed. In recent years the New Zealand financial industry has seen regulation pull together under one entity, the Financial Markets Authority (FMA) who’s the self-proclaimed goal is “to promote and facilitate the development of fair, efficient and, transparent financial markets.”
Payday Loan Alternatives
As you have now probably realized, due to their high cost and strong potential to make matters worse, payday loans should always be the last choice. If you’re desperate for a small amount of money before you fill that payday loan form, you should consider some other options like.
If your problem is rent, ask your landlord for an extension. Find a way to negotiate to pay less this month and then augmenting next month when you are on your feet.
Use your credit card. Although the APR could be high, it’s typically less than a payday loan.
Borrow from friends or family.
Pawn or sell unnecessary valuables.
Trim your budget down to the essentials.
Increase your income. You can do this by finding a side-hustle. Driving for a ride-sharing company, walking dogs and babysitting are a few ways to make some really cool cash in short periods.
Ask your employer for an advance on your paycheck. Under extreme circumstances, it may be allowed and could be a fee-free method to borrow against your future income.
Finally, when assessing a loan of any kind, know the difference between one that builds wealth, such as those for an education or a business with reasonable terms, and loans with fees so high they almost immediately become a drain on your resources. If what you need money for is a business venture or a payment that doesn’t really guarantee you the money at the due date, its best to ignore payday loan as it could turn into a landslide of debt if not properly planned.
How then Do You Spend the Money?
Payday loans stories aren’t all gloom and doom. Of course, there are situations that payday loans can be very useful. Get groceries, a new set of tires, fees, and bills, etc. The awesome thing about payday loans is that you don’t owe anybody any explanation about what you want to do with the money, most of the time, lenders would not even ask you. They understand that these grants are meant to solve unexpected financial emergencies, and whatever you choose to do with your money is entirely your responsibility.
The large consensus of these loans is that they enable people to meet important, short-term costs.
Who can take a payday loan?
Payday loans are set up to provide you with cash quickly. In cases of emergency financial needs, payday loans can be used to cover until your paycheck arrives. Due to the urgency of most payday loans, most lenders only demand that a few conditions be met for a person to qualify for a loan so as long you meet up with the requirements and fit into the following profile, your loan application will be granted
Live in New Zealand and be at least 18 years of age
Receive an after-tax income above NZ$350-NZ$400 per week, and be in permanent employment. While lenders may contact your employer to verify your employment claim, they will not disclose the nature of the loan.
Proof of address, say a bank statement or utility bill, a mobile phone number and email address.
A bank account with your income deposits shown
You can get a payday loan if you also receive a benefit, but you must still meet weekly income minimum.
Most lenders do not care about your credit history, and even when they do, you can be sure to get your loan still.
Whether you are considering a payday loan or you just want to know the deal with it, here are a few necessary information to arm yourself with,
Getting a loan
Getting a Payday loan isn’t exactly as difficult as it seems. All that’s required for you is to input the necessary information on the online application, which may demand to attach additional support documents about your work and monthly income. This should take less than 2 minutes. Access will be granted as soon as the request is approved, and the terms and conditions are presented for your signature.
Loans deals are actioned only after signatures have been digitally affixed so, you can definitely choose to walk away at any point from the loan application if you are no longer interested, and there will be no obligations on your part. However, when you accept the offer, you will find the money in your account.
What happens to your Information?
Notable lenders sites are guaranteed properly safeguarded with the latest encryption technology with full assurance that only the lenders see your personal details.
Fees and Interest costs-Getting huge loans and low interests.
One great way to get the best out of payday loans when you take them is to shop around and compare interest rates because they do vary and change with time.
The more you borrow and make payments, the cheaper your loans will be. Regular and early payments ensure that you get a decreased interest rate on subsequent loans. Regular repayments you can make, the cheaper your loan will be. Late payments often attract penalties, but by paying in full early, you can save money and increase your score so that you are eligible for subsequent higher loan grants at low-interest rates.
How Do I Repay the Loan?
As soon pre-arranged repayment date arrives, the loans can be repaid on your next payday. So if your paycheck is to come in 2 weeks, then your loan is due in 2 weeks. Loan time frames may vary from lender to lender, but this information is usually specified on the loan agreement.
HOW DO WE COME IN?
As you probably now aware of yourself, the world of payback loans in a delicate frenzy. The slightest of mistakes can lead to nightmares, and that’s why we have come up with the best way to beat the system. We have compiled a helpful guide for you to compare the different lenders in the market and make an informed decision on which lender you want to go with. On our site, you will find reviews of companies that provide loans to payday services to help determine which interest and conditions you are most comfortable with.
Long gone are the days of sifting through tons of paperwork or wait in line to see the Manager. Now you can easily file from the comfort of your room, simply check out the companies that most serves your purpose and interest on our site, finish up everything online and stand a chance to get what you need.