Personal Loan

A personal loan is a set amount of money that you borrow from a bank or finance company. You don’t have to put up any property or assets as security for the loan. Instead, you agree to pay it back over a specific period in regular installments, usually monthly. 

In New Zealand, people often use personal loans for a variety of reasons, such as paying off other debts, making improvements to their home, covering unexpected bills, or buying something expensive. Understanding how these loans work, what lenders check before lending, and the different types available can help you decide if a personal loan is the right choice for your situation.

Personal Loan Lending Criteria

Lenders assess several factors before approving a personal loan. They review your credit history to evaluate how reliably you have managed previous debts. Consistent repayments increase approval chances. Proof of income, usually through payslips or bank statements from the past few months, is required to verify your ability to repay. 

Employment stability also matters; permanent or long-term roles are preferred over casual or temporary jobs. Your existing debts are considered via the debt-to-income ratio to ensure repayments won’t overwhelm your finances. Lenders require borrowers to be at least 18 years old and New Zealand residents or citizens, sometimes with a minimum residency period.

Loan Types

Personal loans in New Zealand come in different types, each suited to particular needs:

• Unsecured loans: These don’t require any assets like a house or car as security. Because lenders take on more risk, interest rates tend to be higher compared to secured loans.
• Secured loans: These are backed by something valuable you own, such as a vehicle or property. This security usually means you can get a lower interest rate.
• Fixed-rate loans: The interest rate stays the same for the whole loan period, so your monthly repayments don’t change. This makes it easier to plan your budget.
• Variable-rate loans: The interest rate can go up or down depending on market conditions, which means your repayments can also increase or decrease over time.
• Debt consolidation loans: These loans let you combine several debts into one single loan. This can make managing repayments simpler and might lower the total interest you pay.

Understanding these different loan types helps you choose the one that best matches your financial situation and goals.

Rates & Fees

Personal loan interest rates in New Zealand typically range between 7% and 20% per annum. The rate you receive depends on factors such as your creditworthiness, loan amount, and lender policies. In addition to interest, several fees may apply. Application fees cover the cost of processing your loan and generally range from $100 to $200.

Establishment fees are charged for setting up the loan and may be added to the loan amount or paid upfront. Some lenders impose early repayment fees if you pay off the loan before the term ends. Late payment fees apply when repayments are missed or delayed and increase the total cost. To accurately compare loans, consider the Annual Percentage Rate (APR), which combines interest and fees.

Personal Loan Terms

Loan terms usually range from six months to seven years in New Zealand. A shorter term means higher monthly repayments but less total interest paid. A longer term reduces monthly payments but increases the total interest over the life of the loan. Loan amounts commonly start at $1,000 and can reach $50,000 or more, depending on the lender and borrower profile. Selecting terms and amounts that fit your financial situation is important to avoid undue repayment pressure.

How to Apply

Applying for a personal loan generally involves:

1. Checking your eligibility by reviewing your credit score and gathering proof of income and identification.
2. Comparing lenders’ interest rates, fees, and terms to find a suitable option.
3. Completing the application online, by phone, or in person, providing personal, employment, and financial information.
4. Submitting documents such as payslips, bank statements, and proof of residency.
5. Waiting for approval, which can take from 24 hours to several days, depending on the lender.
6. Reviewing and signing the loan agreement if approved.

Some lenders offer pre-approval checks without impacting your credit score, allowing you to assess your borrowing capacity before formally applying.

Repayment Options

Most personal loans are paid back through fixed monthly installments that cover both the amount you borrowed (the principal) and the interest. Many lenders also let you choose different payment schedules, like weekly or fortnightly, which can better match when you get paid. Some loans come with an offset account, where your savings balance is linked to the loan, reducing the amount of interest you’re charged by lowering the principal owed.

In certain situations, such as financial hardship, lenders might offer temporary repayment holidays to pause your payments for a short time. It’s really important to keep up with your repayment plan to avoid extra fees and damage to your credit score.

Loan Management

Effective loan management involves monitoring repayment dates and ensuring payments are made on time. Online banking and lender apps simplify this process by providing loan balance updates and reminders. If financial difficulties arise, contacting the lender promptly to discuss hardship options or restructuring can prevent default and additional fees. Staying current with repayments supports your credit rating and overall financial stability.

FAQs

Which personal loan is easiest to get?

Typically, unsecured personal loans with smaller amounts and shorter terms are easier to obtain if you have a reasonable credit score and steady income. Secured loans may be easier for those with lower credit scores, as collateral reduces lender risk.

How much would a $5000 loan cost per month?

Monthly repayments vary by term and interest rate. For example, a $5,000 loan over three years at 10% interest would require around $160 to $170 per month. Extending the term lowers monthly payments but increases total interest paid.

What different types of personal loans are there?

There are unsecured and secured loans, fixed-rate and variable-rate loans, as well as loans designed specifically for debt consolidation. Each type serves different borrower needs and financial situations.