A personal loan is a monetary loan you can get from a credit provider such as a bank, credit union or online lender – usually for a specific life purpose like renovating your home, paying for a holiday or consolidating several smaller loans. Lenders approve personal loans by evaluating your creditworthiness.

When you enter into a contract for a personal loan, you typically receive money in a lump sum and agree to repay the lender back the money in regular instalments over a specific length of time.

You also pay interest on the amount you borrow, and in some cases, fees and other charges. These interest rates, fees and charges can vary from lender to lender, loan to loan and borrower to borrower.

How do personal loans work?

If you’re considering a personal loan, you should become familiar with some of the details, including how much you can borrow, how to apply and how much they cost. Here are some of the main concepts to remember:

• The amount you can borrow. Personal loan amounts can be very small or very large. We’ve seen lenders offer loans as little as $500 and as large as $70,000.
• The application and approval process. You can apply for some personal loans online in a matter of minutes and be approved (or denied) just as quickly. With others, you may have to visit a branch and it may take days for the approval process to complete.
• The cost. On top of requiring you to repay the loan amount, lenders make their money by charging you in a number of ways. These may include interest on the loan, as well as fees like an establishment fee, monthly fees, late payment fees and early discharge fees. Your specific combination of charges will be described in your contract.
• The loan term. This is how long you’ll be paying off the loan. We’ve seen loan terms as short as 3 months or as long as 7 years.
• The amount of repayments and when they are due. Your loan amount, interest rate and loan term will be set in advance, so it’s easy for the bank to calculate exactly what your regular payments will be and when they are due.

Types of personal loans

Here are the main types of personal loans you may encounter:

• Unsecured personal loans. Your standard personal loan you can use toward various life projects like a holiday, home renovation or medical bill.
• Car loans and other secured loans. A personal loan where you offer up an asset as collateral in case you can’t make your payments. This collateral is officially known as the security. Take for example a car loan, where the purchased car serves as security that the bank can repossess if you can’t make your payments
• Debt consolidation loan. A special type of personal loan you would use to pay off several smaller loans.
• Line of credit. A personal loan where a specific amount is available for you to borrow, but you don’t have to borrow it all. You only pay interest on the amount borrowed.
• Quick cash loan. A personal loan that doesn’t have a strict acceptance criteria so that people with lower credit scores can get the loans they need. These often come with higher interest rates and fees.

How much do personal loans cost?

The cost of personal loans will differ from person to person and loan to loan. A large part of this comes down to your creditworthiness. For example, someone with a higher credit score and a more positive borrowing history will often pay less for the same loan than someone with lower marks.

Here are some factors that will determine how much you’ll pay:

• Interest rate. This the percentage your debt will increase every year. Most personal loans will charge an interest rate. The Australian Securities & Investments Commission has capped interest rates at 48% but we’ve seen rates as low as 5.75%.
• Fees. Many loans will also charge fees on top of the interest, such as a one-off establishment fee to set up the loan or even monthly fees. Some very small loans might do away with an interest rate altogether in favour of one set loan fee.
• Comparison rate. This is simply a loan’s interest rate when fees are factored into it. Since not all loans charge the same fees, this comparison rate makes it easy for you to compare the loan cost of several loans side-by-side.
• Length of loan. Since your interest rate adds to your balance each year, the longer you have your loan, the more you’ll end up paying in the long run (all else being equal).
• Amount borrowed. Generally speaking, the more you borrow, the more you’ll end up paying for the loan.

How do you apply for a personal loan?

1. Decide how much you want to borrow. Work out how much money you need for your holiday, home renovations, debt consolidation or whatever personal project you need the funds for.
2. Work out how much you can afford for payments. Use a loan calculator to work out how long you’ll need to pay back the loan, based on how much you can afford to pay back per month.
3. Compare personal loan options. Identify a few lenders with loans that meet your criteria from the first two steps.
4. Gather your paperwork. Gather together any paperwork the lender asks for. This may include ID, bank statements and proof of address.
5. Apply. You can apply for most personal loans conveniently online.

Does applying for a personal loan affect your credit score?

When you apply for any loan, your credit score can dip slightly. However, with New Zealand’s Comprehensive Credit Reporting system, regular on-time payments can help your score go right back up.

Some lenders will advertise something along the lines of “free rate quote that won’t affect your credit score.” This means they will quote you a rate based off of basic info like your income and the amount you want to borrow – without doing a credit check.

But this is not the same as applying for the loan. If you want to apply for the loan based on the rate quoted to you, you will usually have to go through a credit check and your score may dip as a result.

Who should get a personal loan?

You should only get a personal loan if you have a specific purpose in mind for the money: to help pay for a special project, purchase or life event, or to help out in a time of emergency.

Taking out a lump sum without any real purpose for it could lead you to squander it and end up with a large debt with not much to show for it. For regular ongoing purchases you plan to pay off regularly, you could consider a credit card instead.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual or business. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post What is a personal loan? appeared first on Credit Simple NZ.

Valentine’s day is just around the corner. And you know what that means: candle-light dinners, romantic water-side strolls, mouth-watering chocolates, exquisitely arranged bouquets and… your beloved’s outstanding debt? 

At first you’ll be enamoured by that special someone’s talents and strengths but there will come a day when you have to face their flaws. And no, we’re not talking about letting one rip in the middle of a Netflix special, because we all do that.

What we’re talking about here is the possibility that your loved one has poor financial habits – habits that could get you into trouble if you’re not careful.

We have an easy-to-follow guide to help you avoid becoming an unwitting victim to your partner’s illicit financial rendezvouses, but we just wanted to take this opportunity to offer a few reminders – so that this Valentine’s Day, you’re not seduced into a lifetime of financial betrayal.

How to avoid financial betrayal

Let’s just jump right in. Here are some ways you can protect yourself from your partner’s poor financial habits:

Be wary of going guarantor. 

Going guarantor on your partner’s loan means they don’t have the financial capability or credit health to get the loan themselves. Instead, they need to leverage your good financial standing. If they default, it’s on you. No ifs, ands or buts.

Pay attention to your joint credit accounts. 

In most cases, you’ll be just as responsible as your partner for any debts accrued on accounts you hold together. If they run up a huge bill on luxury bags or huge nights out with the boys, the lender and/or debt collections agencies can come after you.  

Check your statement regularly and if you see dodgy transactions, talk to your partner about your concerns. Seek couples counselling if necessary.

You should also check your credit score to see what, if any, your partner’s financial habits are having on your score.

Seek legal advice 

In the event of a divorce or separation, the combined debts that you and your partner accrued during the relationship will get deducted from the overall joint asset pool. 

This includes debt from joint credit accounts AND credit accounts in each of your individual names. So if your partner ran up gargantuan debts, you’ll end up with fewer assets when it’s all said and done – even if you weren’t aware of the debts at all.

However, there may be a remedy. If you can prove to a court that your partner accrued these debts without your knowledge and it’s clear the debts were of sole benefit to your partner, you may be able to get a court order removing these unscrupulous debts from the asset pool.

Bottom line

We don’t want to put a damper on your Valentine’s Day, since it’s meant to be a celebration of the love and respect between you and your partner. But it’s also a time when we’re too quick to don those rose-coloured glasses that hinder our ability to see the whole person we’re dining with. 

So by all means, enjoy your romantic day. Feast on that gourmet Italian cuisine, fine wine and luxury chocolates. Just make sure the one who is footing the bill can actually pay it off – or it could foreshadow a lifetime of financial heartache.

The post Avoid financial heartache this Valentine’s Day appeared first on Credit Simple NZ.

The post Managing your finances when life throws you a curveball appeared first on Credit Simple NZ.

Comparing credit cards the right way can be rewarding, because there’s a credit card that can cater to almost every lifestyle and financial need.

When you compare, you’ll be looking at everything from interest rates, to reward programs to promotional offers to fees.

Compare credit cards by type of card

Since you probably already know that closing your accounts too often can hurt your credit score, we hope you’ll keep your card for some time. That’s why it’s important to choose the type of card that’s right for you – so you can enjoy its lifestyle benefits for time to come.

Here are the main types of cards:

• Reward credit cards. Cards that let you earn points you can redeem for gift vouchers, merchandise, travel, cash and more. These are great for people who pay off their credit card every month (so as to avoid interest).
• Frequent flyer credit cards. A type of rewards card that works with your airline’s frequent flyer programs to supercharge your points accumulation. These are great for people who fly a lot and who pay off their cards every month.
• Low-rate credit cards. Cards that charge a lower interest rate on purchases compared to most other cards. These are great for people who occasionally carry a balance, such as at Christmas time.
• No annual fee credit cards. Cards that don’t charge a yearly fee just to carry them. These are great for people who don’t use their card a lot or who keep their card mainly for emergencies.

Compare cards by interest rate and fees

Once you know what kind of card you want, you’ll want to find out how much it will cost you. Costs usually come from:

• Interest rate. The percentage your debt or balance will grow per year. Go for a lower interest rate if you think you’ll often carry a balance from one month to the next.
• Fees. These may include annual fees, cash advance fees, international transaction fees, additional cardholder fees and late payment fees. The fewer fees the better, although annual fees are sometimes unavoidable for certain types of cards like rewards cards.

Compare by the promotional offer

Depending on how you want to use the card, you may want to consider any introductory offer that comes with a credit card. Here are some of the most common:

• 0% purchase rate. These cards charge 0% interest on purchases for a limited time, such as 6 months or a year. This might be a good option if you plan to make a lot of purchases at once, such as at Christmas time or before a holiday, and could use a few months to pay it off.
• 0% balance transfer. These cards charge 0% interest, up to a certain amount and for a limited time, on existing debt you transfer over from other cards. These are good for people who want to consolidate debt from multiple cards and have a plan to pay it all off by the end of the promotional period.
• Extra rewards or points. Some rewards cards will offer extra rewards or points just for signing up. For example, a travel card or frequent flyer card could offer a free domestic flight or a rewards card could offer 10,000 free bonus points.
• Waived annual fees. Some cards will temporarily waive the annual fee, such as for the first year.

Compare credit cards by their perks

Many cards will come with additional perks that are also worth keeping your eye out for. These can include:

• Free travel and medical insurance
• 0% foreign transaction fees
• Airport lounge access
• Concierge services
• Purchase protection and extended warranty
• Retail partner discounts
• Hotel status credits
• Event tickets

Bottom line

Conducting your credit card comparison the right way is important for a number of reasons. It can keep you from paying too much for your card and it can ensure that you enjoy valued perks, rewards and lifestyle benefits on an ongoing basis.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post How to compare credit cards the right way appeared first on Credit Simple NZ.

The post Debt consolidation loan vs. balance transfer credit card – which one to choose? appeared first on Credit Simple NZ.

Don’t believe you have to have a credit card. Paying interest sucks. It sucks the lifeblood out of your finances. That’s because unless you clear your entire bill within the interest free days, you pay interest.

That interest means you’re paying as much as 22.95% more than your mates at the mainstream banks for the same things, which has a detrimental effect on your finances over time.

Other (cheaper) ways to pay

Thankfully there are way more credit-free ways to pay than ever before that are far better for your bank balance. Here are some of the options:

Debit card. One of the arguments for needing a credit card is the ability to shop online. All banks now offer either Mastercard or Visa debit cards. They look like credit cards and can be used anywhere that displays the Mastercard or Visa logo, but you can only spend your own money, not credit.

EFTPOS. We all know how EFTPOS works. Now you can pay online with just an EFTPOS card through some banks at a number of etailers such as MightyApe, BurgerFuel and Smith & Caughey’s department store by choosing “Online EFTPOS” as your payment method at the checkout. A text is sent to your online banking and you approve the payment. The first banks to offer this were ASB and The Cooperative Bank. find out where you can pay with online EFTPOS visit Paymark’s website here.

POLi and account2account. Both POLi and account2account are payment methods that take the money direct from your bank account. Your payment is approved immediately. You can use POLi and account2account to pay online for goods at The Warehouse, Bunnings Warehouse, Xero, NZ Transport Agency, Air New Zealand and others. Despite the fact that this payment method is widely used overseas and offered here by trusted companies, New Zealand’s banks say that it’s not secure and users are breaching their terms and conditions if they pay this way. In the UK regulators forced banks to make customers’ data available to them, meaning they can use this type of payment system without fear.

Ping it. In the old days we did bank to bank transfer or paid cash for Trade Me purchases. Then Trade Me brought in Pay Now, which required a credit or debit card. Now they’ve added Ping. This allows you go pay with credit, debit, or straight from your bank account. The advantage of this is you only need an EFTPOS card to do it. The disadvantage is you are setting up a direct debit agreement with Trade Me and not all members are comfortable with that.

Pay later. Trade Me and other retailers are starting to offer buy now pay later schemes. You buy now, receive the item, and make interest-free payments over several weeks. Laybuy.com, PartPay and Trade Me’s Afterpay all offer this. The problem is if you miss a payment the charges can prove more expensive than interest. Non-payment can also put a black mark on your credit record.

Pre-paid travel cards. Pre-paid currency cards such as Loaded for Travel, OneSmart and Cash Passport work like debit cards when you’re travelling overseas. The catch is that you pay fees and commissions that make this an expensive way to spend.

PayPal. This online payment method that you can load up and spend with isn’t used all that often in New Zealand. If you’re buying from eBay and overseas stores you might find having a PayPal account useful.

Bitcoin. You can pay for a growing number of real life purchases using your Bitcoin wallet. I do own a very small amount of Bitcoin and look forward to the day when I can spend it and bypass my bank’s fees.

Cash. What’s that you say? Sometimes ditching the plastic and spending cash is the most sensible option. Take it out at the beginning of the week, split the money between envelopes for different purposes such as shopping and entertainment and once each envelope is empty just stop spending.

There are other forms of payment coming on. For example Apple Pay has made it to New Zealand in a limited way and Alipay is on its way. However payments from both are connected to your debit or credit card so aren’t in effect changing the way you spend.

Of course credit cards do have uses when you have an emergency. But everyday things such as buying groceries or school uniforms aren’t emergencies. They need planning for.

The post Using a credit card for everything? There are other ways to pay appeared first on Credit Simple NZ.

If you’ve got a credit card but you’re sick of being stung with interest costs, you might be wondering how you can avoid paying interest but still use the card for the maximum benefits. We’ve broken it down.

Credit card interest – the good, the bad and the ugly

Each month, your card will tell you the total amount you owe on your account, and it will also tell you the ‘Minimum Payment Due’. You might choose to pay just that, or maybe more, but still less than the total. That may be convenient if you’re a bit short but you need to be aware that if you don’t pay in full, you’re choosing to start paying interest and that could be at a very high rate.

Minimum payment amounts look good, but they can be a trap. Pay only the minimum payment, and you could be paying only the interest you owe and almost nothing to cover the purchases you made.

End result: you start going backwards. Unless you pay them off in full each month, credit cards can leave you worse off financially.

How a grace period works

You can pay a huge amount in interest if you don’t use your credit card well, but there are also some advantages to using that card when it comes to interest. Your credit card essentially gives an interest-free loan and a grace period of a few weeks. Let’s say you have a credit card period of May 8 through to June 7 with a due date of July 4. Any purchases made within the period can be made interest-free until the payment due date. If you don’t pay your balance in full on or before July 4, you’ll owe interest on your average daily balance.

Will any of this affect my credit score?

Whether or not you pay interest won’t affect your credit score, but you do need to be careful to pay at least the minimum payment each month on time otherwise you could be looking at a payment default (which does affect your score). If you’re wondering about whether closing your credit cards will affect your score, we’ve got more on that here.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post Life hack: How to beat credit card interest appeared first on Credit Simple NZ.

How credit card balance transfers work

If you find yourself in credit card debt, paying a huge amount of interest every month and never making any reduction in the balance because it’s all going in interest, a balance transfer could be your way out. In a way you would be paying off your credit cards with another credit card, but the crucial difference is that the new credit card may come with an interest rate holiday.

This means you can temporarily pause interest while you pay off your credit card debt.

Keep in mind that a balance transfer is not magic. You will still owe the debt, and if you don’t pay it back in a timely manner you will end up paying lots of extra money in the form of interest.

To make it worth your while, you’ll be looking for two things:

• Low or no fees for balance transfers
• Introductory zero interest rate

Balance transfers are not usually free. Some issuers charge a percentage fee of the balance as the fee for the transfer, but not always. It’s worth looking for one that’s free.

Most importantly though, for a certain period, somewhere between 12 and  24 months usually, you’ll pay 0% interest. This is your big break, if you use it wisely. The downside is that if you don’t, you could end up with even more debt.

So before you commit to a balance transfer, it’s a really good idea to work out a plan for getting that debt paid off while you’re paying no interest. Otherwise, a year or two from now,  from now you’ll be right where you are now. Or worse, if – as some people do – you use the balance transfer to pay off the old card, and then go on using it as well as your new one, and then when your 0% interest period comes to an end, you’re paying high interest on not one but two cards and you’re maxed out on both of them.

Even if you can qualify for a balance transfer offer, consider your plan for paying down the debt before you go ahead. You may be wondering how a balance transfer might affect your credit. Depending on your credit history, it might lower your credit scores in the short term, but in the long run, if it means you’re getting on top of things, you might end up in a better position (more about this here).

Here are some things to consider about the terms and fees.

Make sure you known how long your  0% intro rate will last and make sure you understand all the terms and conditions that apply. Also make sure the rate you apply for is the rate you end up with.

Once you’ve made the balance transfer, make sure you pay off your credit card debt so you can eliminate or avoid interest. You may also want to take a look at your spending habits and avoid accumulating more credit card debt while you’re paying off the balance transfer credit card so you don’t end up in the same situation again. Money Simple can help you with that (click on the tab at the top to access our free spend tracker).

You might set up an automatic payment plan to get the whole balance paid off before the period ends. And you might want to think about putting both cards away and not using either of them again until you’ve paid the whole debt off.

The key questions to ask are these:

• How long’s the 0% period?
• What’s the ongoing interest rate?
• What does the card’s balance transfer policy say?
• Does it let me you create my own debt payoff plan on an online portal?
• Does it have late fees or penalty rates?

Here are a few more tips to keep in mind with no-fee balance transfer cards.

Sometimes (but not always) you’ll be charged a fee to transfer the debt(s), such as a percentage of the balance being transferred.

There’s usually a balance transfer period, when you’ll pay no interest or a low interest rate. Be mindful of what the interest rate is after the balance transfer period lapses. This should be specified in the offer and the terms and conditions. The balance transfer interest rate can apply to the debt you’ve transferred, to new transactions, or both. Check it.

It can be extremely swift to sort out a balance transfer, but in some cases it can take up to two weeks, so make sure you keep paying your bills in the meantime.

Transferring the balance doesn’t necessarily mean you’ve closed the old account, so contact your former credit provider and make sure it’s sorted.

Top tip: right now has very competitive 0% balance transfer credit card; check it out here.

All in all, if used properly a balance transfer credit card can work in your favour, to help you consolidate debts and pay them down. It’s all about how you put it to work.

And keep a watch on your credit score, right here at Credit Simple.

The post Credit cards: Why a low-interest or balance transfer credit card could work for you appeared first on Credit Simple NZ.

Can this card help me build my credit?

Your first credit card is your chance to start proving you’re a reliable person to lend to. It’s your chance to show that you can pay what you owe, when you owe it. The more you can be trusted to do it, the better your credit rating will be. Build a good reputation with the card issuer, and that sets you up for them to consider you for some of their other offers and services. So the cheapest card with the least frills is a great place to start building your credit rating. Ideally, you’ll start with as little risk as possible, with the least temptation for you to borrow any more than you can manage to repay. Staying on top of everything gives you the best prospect of building your reputation for being reliable and creditworthy. Pay your credit card bill in full and on time each month, and two good things may happen:

• your payments will be reported to the credit agencies
• you won’t have to pay interest

So the trick is to spend only what you know you’ll be able to pay in full and stay focused on spending within your means.

Not sure what sort of card you should go for? Check out our credit card matrix to help you decide.

How much does it cost to open an account, including the annual fee?

There are plenty of starter cards offering a basic service for a basic cost so you should expect to get a first card that doesn’t charge an annual fee and offers a low interest rate. So what you’ll be looking for is the lowest interest rate, no annual fees, and reasonable credit limits. You might also want to look at a store credit card. That can be a good way to get your first card because the stores are quite ready to approve an application and get another customer spending more money in their shops. It’ll come with fewer benefits and lower spending limits but it can be a good way to use a card responsibly and build up your credit reputation.

Can I graduate to a better card later on?

This first card could be the start of an ongoing relationship with the card issuer. That means if you steadily build up a good record of payment, you could expect them in a while to offer you other cards with more features. That’s a better option than shuffling from one card offer to another on the open market. Why? Because whenever you apply for a new card, the issuer will check your credit and that can take some points off your score. And if you make a whole bunch of applications, you might really have an effect on your credit score because that can give the impression that you could be having financial trouble. (More on closing your credit cards and how it affects your score here.)

Does it have automatic credit limit increases?

Many credit card companies will increase your credit limit automatically, if you show that you’re a responsible credit card user, and use the card enough to warrant a higher limit, so you might want to check that they do that.

The most important thing though is, it’s not which starter credit card that matters as much as what you do with it that really counts.

That means:

Always pay your bill on time. If you think you won’t remember, maybe set up automatic monthly payments from a bank account to make sure it happens.

Pay the balance in full. Any part of the balance that isn’t paid will cost you interest and that can mount your debt up quickly.

Spend only what you can afford to pay at the time of purchase. That way you’ll know there should be enough there when it comes time to pay you monthly account in full.

Be sure to read all  your statements.

Don’t get a cash advance. They can be very expensive and can trigger high interest rates and can be a real headache.

And keep a watch on your credit score, right here at Credit Simple.

The post Credit cards: What a basic starter credit card will do for you appeared first on Credit Simple NZ.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post Credit cards: Are rewards credit cards, travel cards and cash-back cards a good idea? appeared first on Credit Simple NZ.