Personal Loan Guide
Covered in this guide...
What is a personal loan?
A loan for your personal use that must be paid off over a set period of time. This can be secured by an asset that you have agreed to put up as security or unsecured meaning you have borrowed money based solely on your credit history and ability to repay i.e. earnings. As a general rule a personal loan is for a smaller amount and shorter duration than a home loan.
What are the different types of personal loans?
Secured Personal Loan
This is a loan that is secured against an asset, typically a car, boat, or even a savings account. If you fail to repay your loan, the lender can seize the asset and sell it to get their money back.
- The key advantage with a secured loan is that you have access to cheaper interest rates. This is due to the fact that there is less risk to the loan provider.
- If your credit rating is not perfect you may find borrowing difficult, however entering into a secured loan may provide finance options.
- You can lose the asset you put up as a security for the loan
Unsecured Personal Loan
This is a loan where there is no security against the borrowing, hence the lender is providing the loan based on your credit worthiness.
- If providing security is a problem for you and you need cash this is a possibility to gain the finance you need.
- With no security the interest rates will be higher and there will be stricter criteria from the lender to qualify for the more competitive rates.
Debt Consolidation Personal Loan
Loans are either secured or unsecured but we include Debt Consolidation in this section as it is often described as a type of loan by the providers in the market place. Debt consolidation is the act of combining multiple loans, usually of different rates from different providers into one single loan. An example would be combining some credit card debt, a finance company personal loan and perhaps some cash borrowings into one consolidation loan.
- The reason to do this is that you should achieve an overall rate that is cheaper and it should be easy to manage with just one payment to make. The loan provider can structure the debt over a longer period to make it easier to pay off i.e. smaller weekly payments.
- Loan providers will want to work with you when it comes to structuring a debt consolidation loan. The idea being they understand all your financial commitments so they can help you to get on top of your finances.
- You may incur fees getting out of your individual loans and then will have to pay establishment fees to setup the debt consolidation loan.
- Unless you fix what got you into debt in the first place, just consolidating your debt will not fix your financial problems.
How much can I borrow?
This depends on a number of factors. Are you are seeking secured or unsecured? What is your financial position and the level of your income to support the loan? However, there are definite limits around how much institutions will lend particularly with unsecured lending. We provide a comparison table of personal loan rates that you can sort by minimum loan amount here.
What is the PPSR?
The Personal Property Securities Register (PPSR) was established by the New Zealand Government in 2002 as a single online register for all the security interests (claims against personal property other than land) that lenders or businesses need to record.
So, how would I use the PPSR if I was buying something?
Say you want to buy a second-hand ute for your business, the last thing you need after you have taken ownership is for a finance company to repossess it because the seller still owes money on the vehicle. That would ruin your day!! To find out if any business or person has a registered claim (security interest) on the ute you can check on the PPSR website or check their database via text.
Personal Loan Checklist
Each loan provider will have their own fees i.e. Establishment fee, monthly fee, early repayment fee to name a few. These fees are added to your loan principal and hence effect the weekly repayment amount. The only way to properly compare each loan is to get an actual quote.
Know your own credit rating. Lenders use your credit rating to assess your credit worthiness and hence your eligibility to borrow at lower interest rates. If you have an excellent credit rating this is a real bargaining chip for you. You can read about credit ratings at this government site.
Get your finance in place before you go to purchase. Often you can obtain finance at the same place you are purchasing a car and it will seem very convenient. However, you need to check that you cannot achieve a cheaper rate by shopping around.