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Do you need to borrow money? Personal loans can come to the rescue in lots of financial tight spots.
New Zealanders use personal loans for lots of reasons - they might decide to borrow to consolidate debt, fund a major purchase or trip, or pay for an unexpected emergency.
But it’s important to do some planning at the outset to make sure your new loan will fit with the rest of your financial life.
What is a personal loan?
So first things first. What’s a personal loan, anyway?
A personal loan is a loan that you take out in your own name rather than that of a business.
The loan gives you a lump sum of money to fund purchases or expenses for personal use. You then pay the money back, plus interest, over an agreed period of time.
Personal loans can be secured or unsecured.
A secured loan is a type of loan where the lender has a claim on an asset you own, such as your car. If you default on the loan, it could sell the asset to recover the money you owe.
With an unsecured loan, there is no security. The interest rate is often higher than that offered for a secured loan as a result, because the lender is taking more risk lending you the money.
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Using a personal loan repayment calculator
A key part of the personal loan picture is the repayments. You might know what you want to borrow, but do you know what you’ll need to pay back each week, fortnight or month?
The loan needs to fit into your budget, so working out how much you’ll need to be paying at the outset is a good step.
A personal loan repayment calculator can help.
These online tools can run the numbers for you to estimate your likely repayments and show you how different loan terms and interest rates could affect what you pay.
This can give you a hand with budget planning and allow you to explore different scenarios to find a solution that fits.
When you open a personal loan repayment calculator, you’ll be asked for the amount you want to borrow, the loan term, repayment frequency and interest rate.
It will then show you your repayments and how much of your loan repayments are interest. You may be able to input information to show you the impact of an additional one-off repayment or alter your regular repayments to see the effect on the cost of your loan. It can be interesting to see how even relatively small extra payments can reduce the overall cost of a loan.
Check out better finance™️’s online personal loan calculator here. It’s a powerful tool that can equip you with the information you need to get the most out of your loan.
Is getting a personal loan a bad idea?
Loans can be a scary concept for some people, particularly if they are not something you have had much to do with until now. While there are a few things to watch for, there are benefits to borrowing, too.
Pros:
On the plus side, a loan allows you to access money when you need it. You will usually have flexible repayment options to enable you to tailor the loan to your circumstances. When you make your repayments on time, having a loan may improve your credit score.
Cons:
But on the other hand, borrowing money comes at a cost and you’ll pay interest for your personal loan. There may also be fees payable, either one-off or on a regular basis, If you were to fall behind on your payments, it could have a detrimental impact on your credit score.
Whether a personal loan is a good or bad idea depends on your personal circumstances.
It might be appropriate to check that your financial life is in generally good health before you apply. Are you having trouble paying any of your bills? Is your income reliable? Debt needs to be manageable so that it doesn’t become difficult to repay.
Factors to consider before applying for a personal loan
As you’re getting ready to apply, there are a few things to think about.
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Purpose of the loan: Are you borrowing to pay for something that’s necessary or important – or could it be avoided?
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Loan amount and repayment term: It usually makes sense to only borrow as much as you really need. Taking a bigger loan than is necessary can just create expenses. Consider your repayment term, too. If you can afford to pay a loan off more quickly, it will usually save you interest.
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Interest rates and fees: What interest rate is a lender likely to charge you? And is it fixed for the term of the loan, or could it change? At better finance™️, we know what’s available across a range of different lenders. We also help you to understand whether there are any fees or costs that you might not have budgeted for.
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Alternative options: Could you borrow money from family, or do you have savings you could tap into? Sometimes, you might find you have other options that mean you don’t actually need a loan at all.
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Impact on your financial goals: You may have other financial goals that could be affected by a personal loan. Sometimes, that can be positive if the loan allows you to get on with things and move on to your next goal. But if the repayments affect your ability to pay for something else, you might need to consider that impact.
How to make informed decisions about personal loans
Take a bit of time before you apply to make sure you’re making an informed decision. This will help you get the best out of your personal loan.
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Compare loan options using calculators: Although a lender might suggest a repayment structure, you may require a different structure for your situation and objectives. Jump on a calculator and see how you might be able to arrange the lending in a way that benefits you. We can help you look at the options.
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Read customer reviews and check lender credibility: Other borrowers will have left reviews of lenders online. See what they have to say – was the experience of borrowing a positive one? You can also check that lenders are registered on the New Zealand Financial Service Providers Register.
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We’re here to help if you’re not sure: At better finance™️, it’s our job to help you with questions you may have about the lending process. Don’t be afraid to ask our financial advisers for any assistance you might need.
FAQ
What’s the difference between a secured and unsecured personal loan?
When a loan is secured, the lender takes an asset as security and can sell this if you do not meet your obligations. That could be something like your car or even household goods. An unsecured loan has no security but can have higher interest rates than a loan that is secured.
How does a personal loan affect my credit score?
Applications for a loan will be noted in your credit report. When you make the repayments on time, this may help to improve your score. But if you miss payments on your personal loan, it can negatively affect your score.
Is using a personal loan for discretionary expenses a bad idea?
Everyone needs to make their own financial decisions in line with their individual situation and circumstances. In general, it may not make sense to borrow money to pay for something that you don’t really need – but you know your needs best.
Can I repay my personal loan early?
Usually, you can repay your loan early, although additional payments may be subject to additional fees.
My application was declined, is there anything I can do?
We may be able to help you apply with a different lender. You could also look at whether there are errors on your credit report that might be painting an unfair picture of your creditworthiness. Another option might be to boost your income to make lenders more comfortable that you can service the loan.
What will I need to have to apply for a personal loan?
You’ll usually need documentation to evidence information such as your income, your identification, and proof of address. This is likely to include your recent bank statements.
How old do I have to be to apply for a personal loan?
In most cases, you’ll need to be at least 18 to apply for a loan.
What happens if I miss a payment?
Get in touch with your lender as quickly as you can, to explain what has happened and devise a plan to catch up. You may be charged additional fees.
Conclusion
Taking out a personal loan is a significant financial decision that should be made carefully.
Tools such as repayment calculators can be very helpful in determining what any loan you’re considering might be like in practice.
Before you make an application, take some time to consider your needs and how a personal loan fits in with them. That might mean thinking about your financial life now but also what it might be like in the future.
Ready to take the next step? Explore our personal loan repayment calculator or get in touch with the team at better finance™️ to talk through your needs, today.