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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.

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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.

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If you’ve ever wondered what your credit report looks like, wonder no more. This guide will give you insight into your credit report, including what information it contains, how to read it, and why it’s so important.

There are three main credit reporting bureaus in Australia, and you can access their version of your report in a number of ways, including in a written/physical format or through an online dashboard.

Each variation may differ slightly in the way it’s presented, but the bulk of the information will be the similar. For this guide, we’ll be using the convenient (and free!) Credit Simple online credit report dashboard to explain what your credit report contains.

Credit Simple gets its data from the credit reporting bureau illion.

Your credit score

When you first login to Credit Simple, you will see your credit score. This is a reflection of your credit-worthiness boiled down from a heap of lending data into a simple number.

Your credit score and score trend

illion scores range from 0 – 1,000 and the higher the score, the more creditworthy you’re determined to be.

Here’s how the scores break down:

• Score of 0. This is the lowest score you can get and means you’re the riskiest kind of borrower. People with a score of zero either don’t have a credit history at all or have experienced a very negative credit event like bankruptcy.
• 1-499. You have a below-average score and are considered very risky to lend to.
• 500-699. You have an average score and with a few small changes to your borrowing behaviour, you could easily improve your score.
• 700-799. You have a good score and lenders are likely to give you favourable treatment. However, you may want to limit the number of applications you make, as this is what is likely keeping you from having an excellent score.
• 800-1000. You have an excellent credit rating and are considered the least risky to lend to. This puts you in a great negotiating position with lenders.

Your credit history

Your credit score isn’t a magic number that is pulled out of thin air. It is the result of a calculation that incorporates heaps of data around your borrowing habits. The data that your credit score pulls from is called your credit history.

Credit Simple also provides your credit history, broken down into the following categories:

• Personal information. Your name, date of birth, address and previous address.
• Accounts. The accounts you have open including mortgages, credit cards, utility accounts and even equipment hire. It also includes details like the amount you owe and a complete breakdown of your payment history.
• Enquiries. The times you’ve authorised a lender or a utility to do a hard enquiry into your credit history (a hard enquiry is an official inquiry related to an application for a loan). Looking at your own credit history (soft enquiry) won’t decrease your score, but too many hard enquiries can lead to a small deduction.
• Authorised agent enquiries. The times you’ve allowed an authorised agent, such as a mortgage broker or a car dealer, to do a credit enquiry on your behalf.
• Defaults. Any payments that are at least 60 days overdue (or were at least 60 days overdue at the time of payment).
• Serious credit infringements. Situations where a lender believes you fraudulently tried to obtain credit or tried to fraudulently avoid your credit obligations.
• Judgements and Summons. Publicly available court records pertaining to your debts.
• Personal insolvency. Publicly available data from the Australian Financial Security Authority related to bankruptcy.
• Other public record information. Other publicly available information that may be useful to potential creditors when determining your creditworthiness.
• Company directorships. Publicly available information from the Australian Securities and Investment Commission about any previous or current directorships you’ve held in any company.
• File notes. Notes placed on your credit history (at your request) explaining or disputing the circumstances surrounding information on your report.

Here’s what it looks like in the tool:

The categories of reporting in your credit report.

You can expand each section to see much more detail about each. Here we are looking at payment history of a specific account listed in the accounts section:

A detailed repayment history for an example account

What can you do with this information?

As you can see, a credit report is quite straightforward although it can contain quite a bit of information. The good thing about a tool like Credit Simple is that it allows you to have all of this information at your fingertips and dig through it systematically.

Going through your report with a fine-tooth comb can help you in a number of ways. You can:

• Identify areas where you could improve. If you see that late payments are hurting your score more than you thought they were, it’s likely to propel you to make changes.
• Identify errors in your report. If you see something reported that you dispute, you can bring this up with the lender or the credit bureau. Credit Simple lets you lodge a dispute right through the tool.
• Negotiate better terms. If you see that you have a good score, you can have more confidence in negotiating with your lender for better terms like lower interest rates and reduced fees.

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 Here’s what a credit report actually looks like appeared first on Credit Simple NZ.

New Zealand banks don’t just include negative incidents on their reports to the credit bureaus, but they also include positive ones. That means there are ways to fix your credit score even after a few late payments or even a default knocks you back.

Here are the steps you’ll need to take to fix your credit rating and get it pointing in the right direction.

1. Know thy credit score

It’s hard to get from point A to point B if you don’t know where you currently stand. CreditSimple gives you your credit score – courtesy of credit bureau illion – in the form of a dial that shows you how far away you are from a perfect credit rating.

You can also see your credit report, which contains the actual loan records that illion uses to calculate your credit score. That means you can see exactly what’s helping it and exactly what’s hurting it.

There are other credit bureaus in New Zealand and you can request your credit score and credit report from any one of them.

2. Dispute any reporting errors

If your credit report shows you defaulted on a payment to your utility company but you know you never did, you can take it up with the credit bureau or the lender that reported it. Same with other lenders.

They’ll investigate the matter and remove the negative incident if they find there’s been an error.

Credit Simple conveniently lets you raise a dispute right through the website.

3. Fix your own mistakes

Look through your credit report and see if there are any late payments you may have forgotten about.

If a late payment of $150 or more is more than 60 days overdue, your lender can report it as a default. This will stay on your record for five years, so you can see how important it is to nip late payments in the bud.

4. Pay your bills on time

Now that you’ve cleared up any errors and took steps to minimise further damage, it’s time to start building your credit score back up. The good news is that New Zealand’s credit reporting scheme rewards you for doing the bare minimum of paying your bills on time!

The easiest way to do this is to set up direct debit. This will allow your payments go through automatically while you sit back and watch your credit rating start to tick back upward.

5. Stay credit active

Lenders want to see that you’re a responsible borrower and the only way to prove that is to have a healthy amount of debt (and of course, to make your payments on time). Certain loans, like home loans, will often boost your score just because you have it.

Others, like quick cash loans or certain credit cards, will lower your score temporarily. However, if you pay them on time they can serve as a good stepping stone toward the more desirable loans and your score may eventually rise even higher than before.

Fixing your credit score is easier than ever

Unless you have a perfect credit rating, there’s always room to improve. And with positive credit reporting in New Zealand, fixing your credit score is pretty straightforward. There’s no better time to get started than now – the future you will thank you.

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 fix your credit score in 5 easy steps appeared first on Credit Simple NZ.

In the old days, only negative borrowing patterns – think late payments and defaults – could affect your credit score, also known as your credit rating.

However, in 2012, New Zealand implemented a scheme called Comprehensive Credit Reporting (CCR). That means positive borrowing patterns – like making your payments on time – can help your score tick back upward.

The positive and negative factors that affect your credit score

Before we jump into the nitty gritty, this infographic should give you a good idea of which behaviours to avoid and which behaviours to favour:

Negative behaviours that affect your score

Even with the CCR, negative borrowing behaviours still have an impact on whether or not lenders give you money. Negative examples include:

• Bankruptcies. These stay on your credit rating for two years after the bankruptcy ends or five years from the date you became bankrupt.
• Defaults. Debts worth $150 or more that are at least 60 days overdue may be reported to a credit reporting agency and stay on your file for five years.
• Late payments. Forgot to pay a bill? It shows up on your credit rating even if you settle the debt before it becomes a default.
• Writs, summons and court judgements. Any court appearances relating to debt and the resulting decision negatively affect your credit rating.
• Too many credit enquiries. If you apply for credit multiple times in a short space of time, it suggests you’re desperate for cash.
• Bad Debt. The bureaus consider certain types of loans to be indications of bad borrowing behaviour, for example quick cash loans. Even having credit cards can bring down your score.

Positive behaviours that affect your score

It’s not all bad news. Some credit information can help improve your credit score, such as:

• Repayment history. An established trend of punctual payments is a boon for your credit rating.
• Account opening and closing dates. Lenders can see where, when and how often you’ve been extended credit in the past.
• Type of credit facility. Whether it’s mobile phone bills, utilities contracts or other types of account, organisations can better understand your financial situation if they have more info.
• Your credit limits. Again, any information on your current creditworthiness among other lenders is useful for accessing credit from other organisations.
• Good Debt. Some types of loans will bring your score up. Home loans, student loans and business loans are all examples of loans that make you look like a responsible borrower.

How is your credit score calculated?

There are three major credit bureaus in Australia and each of them calculate their scores differently. Just look at the scales each bureau uses differ:

illion: 0-1000
Centrix: 0-1000
Equifax: 0-1200

Each of these bureaus have developed their own algorithms that take the positive and negative behaviours described in the previous sections, weight those behaviours according to the importance the bureaus place on them and calculate your score accordingly.

Although the bureaus don’t publish these formulas publicly, you can be sure they all largely consider the same positive and negative behaviours discussed.

You can also dispute entries on your credit file if you think there’s an error. You can read more about how to dispute records on your credit file in our guide to disputes here.

Credit Simple offers free, convenient access to your illion credit score. So feel free to have a dig around your file and get a feel for what types of activity the bureaus consider when calculating your score.

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