How to Choose The Right Debt Consolidation Loan in NZ

 

Taking out loan after loan can snowball into a larger debt that might not have been anticipated from the start. Many borrowers find themselves paying many different lenders every month, after accumulating multiple loan amounts.

Borrowers whose loans have multiplied over the years often find it difficult to keep track of what loans should be paid off first. Debt consolidation loans can be the key to fixing the problem in scenarios like this.

This guide can help those looking for debt consolidation solutions to fully grasp what it is, find out what its benefits are, and discover what companies offer this type of loan. Consider the options on this list for the best consolidation loans and balance transfer credit cards.

What is a Debt Consolidation Loan?

The concept behind debt consolidation is taking out one loan to pay off other loans. This could reduce borrowers’ monthly payments, helping individuals feel less stressed about managing numerous loans.

Debt consolidation loans can typically be used for credit cards, medical bills, or other personal loans. Instead of having to pay several high credit card or loan payments each month, consolidation can make the month-to-month repayments more affordable.

Debt Consolidation Loan vs. Balance Transfer Credit Card

A loan versus balance transfer is important to understand before deciding which route to take. With a consolidation loan, borrowers take out one loan that they will then disperse to pay off their other loans. A balance transfer credit card is a way to consolidate credit card debts. With this, all credit card balances that are part of the consolidation plan are transferred to the new credit card.

Keep in mind the fact that balance transfer credit cards typically come with a period of time in which borrowers are not required to pay interest. While this does help alleviate some of the financial burden for a short period of time, it will eventually come to an end, and there will be interest applied at a later date.

When Consolidating Debt Would Be Beneficial

Weighing the pros and cons of debt consolidation will give a clearer idea on whether it is the right choice. Getting this type of loan is beneficial:

  • If it makes the monthly payments fit into an existing budget. Making debt repayments fit into a monthly budget is the No. 1 rationale for this type of loan.
  • If it reduces the number of monthly payments. Having one payment is easier to manage.
  • If the goal is to make a change in spending habits. Having existing debt is the reason many consider this option. Staying out of debt will help make this option worth it.

When Consolidating Debt Doesn’t Make Sense

Debt consolidation might not always be the answer. This type of loan won’t be helpful:

  • If it costs more in interest in the long run. The goal is to save money in the long term, not spend more on interest.
  • For those who have only a small amount of debt. Consolidation loans might not be worth it if a small amount of debt can be paid in a short amount of time.
  • For those who are not committed to staying out of debt. Spending more after paying off debt can land borrowers right back in the same situation later on.
  • For those who are almost finished paying off debt. Consolidating loans that are nearly paid off may not be worth the additional fees and hassle.

5 Best Debt Consolidation Loans in New Zealand

Many financial companies offer debt consolidation in their loan options. Consider these businesses available in New Zealand to take back control of your finances.

1. The Co-operative Bank

The Co-operative Bank offers unsecured debt consolidation loans for small or large debt consolidation plans in New Zealand. It does not penalize borrowers for making early payments.

Interest rates and fees: Interest rates begin as low as 6.99% and go up to 19.99%. The interest rates are not fixed, meaning they can change over the life of the loan. An establishment fee of $200 is also applied.

Requirements: Borrowers must be 18 or older, currently living in New Zealand, and New Zealand citizens or permanent residents.

How to apply: Complete an online application in as little as 5-10 minutes. Proof of income, 90 days worth of bank statements, and statements for the debts to be consolidated will also be needed, but can be provided at a later date.

2. Harmoney

Harmoney offers unsecured personal loans that can be used for debt consolidation. Loans are created with a fixed rate, so there is no change over the life of the loan. This company also doesn’t penalize borrowers for making early payments.

Interest rates and fees: Interest rates range from 6.99% to 24.69%. An establishment charge of $200 or $350 is applied based on the amount of the loan.

Requirements: To get approved in New Zealand, applicants must be at least 18 years old, earning a stable income, and New Zealand citizens or permanent residents.

How to apply: Select the ‘Apply Now’ button on Harmoney’s homepage and fill in the prompt to proceed with an email address, Facebook, or Google account.

3. Lending Crowd

Lending Crowd is a peer-to-peer lending platform that offers low interest debt consolidation loans. It matches borrowers directly with lenders and cuts out the financial institution completely. Its personal loan options can be used for consolidating debt for any reason, with fixed rates and no early payment penalties.

Interest rates and fees: Rates range from 5.03% to 19.30%. An establishment charge of between $200 and $1,450, depending on the loan amount, is also applied.

Requirements: Applicants must be 18 or older to apply. In addition, they must be able to afford the loan and hold NZ citizenship or permanent residency.

How to apply: Start by receiving an anonymous quote. From there, decide whether the quote is favorable, and proceed.

4. Nectar

Nectar is a New Zealand-based company offering unsecured debt consolidation loans with fixed interest rates. It also offers flexible repayment terms and does not charge a fee for early payments.

Interest rates and fees: Interest rates range from 8.95% to 29.95%, plus a $240 establishment fee.

Requirements: NZ permanent residents or citizens who are 18 or older with an income of at least $400 per week may apply for a loan.

How to apply: Apply for a loan by filling out the loan application on Nectar’s website.

5. Quick Loans

Quick Loans offers small debt consolidation loans to people living in New Zealand. Loans can be used toward current debt accounts. This company funds new accounts within 24 hours, and does not charge borrowers for early account settlement.

Interest rates and fees: Rates are 9.95% to 23.95%. Establishment fees of $95 to $595 (depending on the loan amount) and an administrative account fee of $12 per month are also included, in addition to a $3 fee per month if direct debit is set up.

Requirements: Borrowers must be 18 or older to apply, able to afford the repayment amount, and a NZ resident or citizen.

How to apply: Take five minutes to fill out the online application and have an answer in as few as 60 minutes.

5 Best Balance Transfer Credit Cards in New Zealand

Credit card debt can easily get out of control. A credit card balance transfer is another way to consolidate debt.

1. The Cooperative Bank Fair Rate Credit Card

The Cooperative Bank offers a fair rate credit card that can be used for balance transfers, minimum $100. It offers six months interest free on balance transfers, plus floating rates, meaning the interest rate can change at any time.

Interest rates and fees: Rates begin at 12.95% and can change at any time. A $10 account maintenance fee is applied every six months.

Requirements: Applicants must be 18 or older, living in New Zealand, and hold permanent New Zealand residency or citizenship.

How to apply: An application can be quickly completed online.

2. Kiwibank Low Rate Visa

Kiwibank offers balance transfer credit cards from non-Kiwi credit cards or store cards. The low rate visa is similar to low interest debt consolidation loans. The minimum amount required for a balance transfer is $200. This company offers very low rates for six months to pay off the debt.

Interest rates and fees: Interest rates begin at 1.99% for six months and go up to 9.95% after that. A $15 account maintenance fee is applied every six months, as well.

Requirements: To apply, applicants must be at least 18 years old, New Zealand permanent residents or citizens, and have a good credit history.

How to apply: Apply online for the Low Rate Visa and have an approval within one-to-three business days.

3. ASB Visa Light

ASB offers a credit card specific to balance transfers and debt consolidation. It allows borrowers to transfer their balance with no interest for six months and no fee to make the transfer.

Interest rates and fees: These are 0% for the first six months, and then the remaining balance will be charged at a rate of 13.50%. There is no account maintenance fee.

Requirements: Applicants must be at least 18 years old and New Zealand citizens or permanent residents.

How to apply: Select the ‘Apply Now’ option on the Visa Light page to begin the application process.

4. TSB Visa Classic

The TSB Visa Classic is a balance transfer credit card that provides 0% interest for the first six months. It allows borrowers to consolidate debt from other bank or store credit cards.

Interest rates and fees: After the initial 0% for the first six months, the interest rate is 18.50%. A $15 account maintenance fee is applied every six months.

Requirements: Applicants must be at least 18 years old and NZ citizens or permanent residents.

How to apply: Apply via the TSB website. Use the prompts to select Visa Classic and begin the application.

5. Westpac Airpoints Mastercard

Westpac Airpoints Mastercard is a credit card that earns rewards. It offers balance transfers for borrowers to pay off debt with other bank credit cards. Additionally, it offers no interest for 12 months, or a low rate for the life of the loan.

Interest rates and fees: Balance transfer rates are as low as 5.95%. An annual $55 account fee is also applied.

Requirements: NZ permanent residents or citizens who are 18 or older with an income of at least $15,000 per year can apply.

How to apply: Apply online in as little as 5-10 minutes on the TSB website.

What To Know Before Consolidating Debt

Consolidating debt can be a great idea, but there are some things to consider first.

Should I consolidate all of my debt?

Consolidating debt can help borrowers afford monthly repayments, but if the consolidation loan has a high interest rate, then a large loan amount could possibly cost a borrower more in the long run. Do the math before making a decision on consolidation.

What are the average debt consolidation loan rates?

The rates will vary depending on each lender. Rates can be as low as 1.99% for balance transfer credit cards, or up to 29.00% for bad credit debt consolidation loans.

Is it better to get a personal or debt consolidation loan?

These are essentially the same thing, advertised for different needs - and many lenders offer loans for both personal and consolidation purposes. So it’s always best to compare the rates, fees, and uses of a loan before choosing one.

Is it better to get a debt consolidation loan or a balance transfer credit card?

If a borrower can pay off the debt within the no-interest period, then a balance transfer credit card will save the most money in the long run. Do the calculations on a consolidation loan versus a balance transfer credit card to decide which option is the most affordable.

How to Decide if The Pros Outweigh The Cons of Debt Consolidation

  • Start by calculating how much debt would be ultimately consolidated to have a better understanding if debt consolidation is the right choice. If the current debt is small and can be paid off quickly, then it might not be worth it to take out a consolidation loan.

  • But there are instances in which the loan is worth it. For example, if a borrower is offered an 8% loan to consolidate existing loans at 5% to 7%, it may still be worth it if he/she is struggling to meet the current monthly payments. The new loan structure may provide relief in terms of an interest holiday or smaller fees for default.

  • Choosing the right lender will make all the difference. Compare the available rates and fees to ensure there are no surprises. In the end, if the monthly repayment plan fits within the budget, then it may be worth pursuing some of these best debt consolidation loans.