How to get a low interest loan

If you’re looking to get a loan you want to make sure you get the best interest rate possible. There are a range of factors to consider when comparing loans, but one the most important is the annual interest rate. This is generally the determining factor between a low overall cost and an expensive loan. So what do you want to look at? And how can you improve your chances of getting a low interest rate?

Nowadays a lot of lenders offer variable rates. This means that safer borrowers get a lower interest rate and higher risk borrowers get a higher one. There are a range of factors that go into this, so we’ll cover a few here and you may be able to play to your strengths and ensure you get the best possible rate.

Your credit history

All lenders will run a credit check when you apply for a loan, and they use your credit history as a major factor when assessing your application. If you’ve borrowed money in the past and paid it back then your credit record will have improved. But if you’ve defaulted on a loan, or skipped on something like a power bill, it will be adversely affected. Before you go and apply for a loan it’s a good idea to check your credit score yourself, that way you know what to expect before you come in contact with a lender. Centrix are one of New Zealand’s largest credit bureaus and you can access your own credit report for free at Centrix’s website. Take a look and see where you stand.

Whilst there are a number of factors that go into getting your credit score up, some of the simple ones include

  • Not having too many debts at once: be sure to only borrow what you need, as a lot of outstanding debts will have an adverse effect on your credit score.
  • Pay on time: with the new comprehensive credit reporting, companies now report on a monthly basis and will show when you fall behind or keep up to date. But the good news is that they will also show when you pay your bills every month.
  • Don’t apply for too many loans at once: it’s ok if you’re just getting a quote, but if you fill out applications all over town there’s a chance it will adversely affect your credit score.
  • Keep your contact details up to date: by keeping your current lenders in the know, you can have a positive impact on your overall score.
  • Monitor your credit score: keep an eye on your own credit profile and report any unauthorised enquiries.
  • Be careful what kinds of loans you apply for: with a range of different products available most credit bureaus will adjust your credit score based on the types of lenders you’re using. For example, a mortgage is a very different financial product to a payday loan, and your score is likely to be affected differently with each of these.

Secured versus unsecured

Personal loans are generally secured by an asset or they are unsecured, meaning the lender can’t take any physical items to recover their money if you default. And the annual interest rate is often adjusted accordingly. This reflects the risk that the lender is taking on, and when they have an asset to fall back on they will usually be able to offer you a lower rate.

  • Secured loans use a specific item as collateral. In New Zealand you generally don’t have to hand the item over to the lender, but they register an interest in it via the Government’s PPSR, which means that if you don’t pay then they can repossess that item to recover the debt. Most often a secured loan is offered over a vehicle, and you keep the car in your possession unless you fail to make payments and fall severely behind. There’s a range of protections for borrowers with secured loans, so it’s always a good idea to thoroughly read the contract before you sign it. But the beauty of a secured loan is that your interest rate should be much lower, because the lender has some recourse should the loan go bad.
  • Unsecured loans are offered with no fall back for the lender. The money is advanced with you as a person being bound by a contract, and if you don’t pay the lender generally only has legal action as an option. Again this varies from lender to lender, and some payday loan companies use wage deductions which you should be very careful about before signing. The downside of an unsecured loan is that there is generally more risk for the lender, so they charge a higher annual interest rate.

 

So what does this mean? Well, if you have an asset you can use as security then it’s a good idea to offer it when applying for a loan. By putting it forward you’re reassuring the lender that you will pay and therefore they will give you a lower annual interest rate.

Consistency

A lot of lenders look at a borrowers consistency, whether it be in their job, at their address or having a regular income that doesn’t fluctuate. Whilst every lender is different, you will often be better off if you can prove that you are a consistent and reliable person. Unfortunately we can’t all control things like where we’re living or how long we stay in a particular job. But if you do have the benefit of this, it’s always a good idea to highlight it in your application. A lender will be reassured if you’ve been in a job for a long time because the liklihood of you staying there and having a predictable income throughout the life of the loan is high.

Previous history

If you’ve had a good loan in the past, whether it’s from the same lender you’re looking to use now or another one, it’s a good idea to mention it. Almost all lenders use your history as a barometer for your future risk, so if you can show you stuck to your payments on your last loan then it’s definitely going to improve your chances on a new one. Whenever you repay a loan it’s a good idea to ask for a statement, and keep that stashed away so you can present it to another lender in the future.

Get yourself a lower annual interest rate

These are just a few things that will help you get a low interest rate on your next loan. Always remember that each lender is different, so they will put a different emphasis on different things. You can always ring them and ask exactly what it is they look at. Pronto Finance for example uses a unique client rating technology, with hundreds of different data points. But the key points are very similar across most lenders. Be sure to play to your strengths and put your best foot forward.

low interest loans

Are you prepared for the kids’ back to school expenses?

Every Summer the new school year comes around seemingly out of nowhere. It feels like only yesterday that we were stressing about Christmas dinner and how to entertain the kids over the long, hot break. And with the secretly welcomed return to routine comes a range of expenses to kit the kids out for the new school year. Being so close to Christmas, most of us find it really difficult to cover these costs without some planning and sacrifice. So what can we do to make the start of the school year easier?

What school expenses should you expect

In 2017 the Australian Scholarships Group (ASG) Planning and Education Index looked at the total cost of a Kiwi child attending school. And it’s scary to see how much it actually costs. For a child born in 2017 it’s estimated to cost

  • $38,362 to send a child to a state school for 13 years of education
  • $109,354 for a state-integrated education over the same term
  • A whopping $345,996 for the same child to attend a private school for 13 years
  • This cost has increased by more than double the rate of inflation over the 2007 to 2017 period

What costs should you expect

  • Textbooks and required reading resources.
  • A device suitable for the classroom. This may be a tablet or a laptop, and generally won’t be cheap.
  • Stationary and supplies. This can range from pens, pencils up to scientific calculators and specialised classroom equipment.
  • New uniforms and sports gear, which any parent knows isn’t cheap, especially given the short lifespan.
  • Sports events, field trips and school camps
  • “Voluntary” donations. These really are voluntary, despite the guilt trip the schools pull, so this is a good place to start when looking at potential cost cuts.

How to prepare for back to school costs

We plan for retirement, buying our own home and other major events. But we often overlook the recurring costs of the kids education. With some planning and discipline we can get on top of this and avoid the financial scramble each year. The first thing to do is start saving well in advance. If you set up an online only sub account, you can squirrel away a small amount each week (starting today) and by next school year you’ll have a slush fund ready to tackle the costs.

Whilst it doesn’t solve this years financial drain, this small and regular contribution will alleviate a huge amount of pressure next year. Start with as little as $10 per week per child and by January next year you’ll have $520 to kick things off. This may or may not be enough, so when you do your shopping this year, keep every receipt in a drawer or a shoe box. Then after the initial back to school shopping is done, tally up the total costs and work out exactly how much you need to save this year. You can then increase or decrease your weekly contribution accordingly.

It’s really important to remember that the ongoing school costs are in addition to this. There’s no point saving throughout the year if you’re constantly dipping into the account for a mid-year camp or replacement items, leaving you with nothing come the New Year. So when you’re budgeting, be sure to make an allowance for these extra costs that pop up in terms 2, 3 and 4.

So next year is planned for, but what about now?

With a proactive approach, next year will be a lot easier on the purse strings. But that doesn’t necessarily help you with this years costs. So what are your options:

  • Get a personal loan
    If you simply don’t have the funds, you can look at the option of borrowing money and paying it off over an extended period of time. There’s obviously an additional cost that you’ll incur, with interest and fees on top of the initial loan. However with small, fixed and regular repayments, this is an easy way to spread the cost of the expensive return to school over a longer period of time. Pronto Finance offers back to school loans to help with this kind of situation.
  • Use your credit card
    Another option that incurs additional costs, this can be a good option if you’re able to clear your account balance before the month is out. But beware of only making minimum repayments, as credit cards have a way of trapping people in debt, with no fixed term or scheduled repayments reducing the principal.
  • Seek help from family and friends
    It’s never easy asking family and friends for money. But if you come up with a detailed payback plan and stick to it, then this is a low cost option to consider.
  • Work and income loans
    Depending on your income WINZ may be able to assist with a loan for stationary and school uniforms. The criteria for this is regularly changing, so get in touch with WINZ to see if you qualify.
  • School
    Some schools offer hardship grants and payment plans to make things easier. Get in touch with the school and ask what the options are. It’s very likely you’re not the only one feeling the pinch and most educational institutions have different ways to help out.

What to look at when comparing alternatives

Personal loans come with interest and fees attached. So it’s vital to look into the total cost of this option. Secured loans will generally be cheaper than unsecured, so if this is an option then it’s one way to get a low interest rate. But be sure to assess not just the interest cost, but also the fees involved. It’s always best to compare the total cost of each option, that way you’re comparing apples with apples.

Credit cards on the other hand often have low fees but a relatively high interest rate. However it’s the risky requirement for only a minimum payment that can be a trap for a lot of people. If you can clear the balance at the end of the month then this is a good option. But if you can’t then you need to look at how much it will cost to roll over interest each month.

back to school expenses

Is your New Year’s resolution to reduce your debt levels?

If you’re like most of us, the New Year is a great to reflect and reset your goals. And one big goal for a lot of people is to reduce or remove all of that accumulated debt. But how can you do it?

Everyone is different and the best approach will depend on your unique circumstances. But here are six possible ways to start the New Year by kicking your debt to touch.

Number 1: put a halt on borrowing any more.


This may sound obvious, but if you’re making great progress on paying down your current debts, but continue to accumulate more in the background, then all of your efforts are pointless. Start your transformation off by putting the brakes on any future borrowing. If it helps, put your credit card in a safe place and keep it out of your wallet. Be sure not to take the easy option when buying things and using buy now pay later options. If you can stop any unnecessary borrowing then you’ve taken the first step to reducing your debt.

Number 2: get on top of your current payments


Take a look at your current loans, credit card balances and fixed outgoings. Most people only make the minimum payments and this is how they get stuck in a debt cycle. By paying more each week, fortnight or month, you’ll start reducing the principal and start seeing real progress each month. Make sure you check to see that you’re not penalised for paying your loan off early, as some finance companies do charge a fee for repaying before the scheduled end date. We recommend you check your lenders website and work out which of your loans does and does not have a fee for this, for example you can see that Pronto Finance doesn’t charge any early repayment fee and they list all of their costs at https://www.prontofinance.co.nz/is-pronto-right-for-you/.

Number 3: start an emergency fund


Whilst it may seem crazy to be saving while you’re trying to reduce your debt levels, you need to start planning for those unexpected expenses that occur in the future. We all get hit by them, so an important step in your debt reduction journey is going to be the ability to deal with it when it happens. Start with a small goal, and out away as much as you can afford each payday. Focus on saving $1,000 first and once you’ve got there, boost it up to $2,000. Long term you want to have savings that will cover you for 3 to 6 months if you were to lose your main source of income. And be sure to have these savings in an online account that you can’t easily access. If it’s in an account linked to a debit card, you’ll face the risk of using the money for things that don’t qualify as an emergency.

Number 4: get rid of your most expensive debt first


Find the bill with the highest annual interest rate and get rid of that first. With compound interest, a few extra percentage points can make a big difference to the total cost of a loan. By paying the higher interest debts first, you’ll save money in the long run. Going back to point number 2, the increase from the minimum payments here is really important, especially on loans with high annual interest rates. So prioritise your loans and allocate as much as you can to the expensive ones.

Number 5: create a budget


Sit down and make a list of all income and expenses on any given week/fortnight/month. By writing it down you’ll realise just how much money is ‘disappearing’ on things you may not need. You don’t need to cut all of the things you love out, but try and find things that you really don’t need but are gobbling up valuable funds. It may be buying lunches at work or a bought coffee each day. If you can identify the little things and cut down your reliance on them, you’ll make huge progress and find big chunks of money that you can apply to your current debts.

Number 6: use a budget advisor


There are a range of free budgeting services in New Zealand, and they’ve all got valuable insights and experience. Organisations like FinCap have teams throughout the country that can sit down and run through your personal circumstances. Their expertise is often overlooked, and only used by people who feel overwhelmed. But you can contact them at any stage, and if you need motivation it’s great to have a professional on side guiding you through the process.

As the New Year starts off now is the perfect time for you to take control and reduce your debt levels. Everyone works differently, but by following these six steps you’ll start to see improvements in no time. Just stick at it and focus on the long term goal, and even when the short term sacrifices seem difficult, think just how great it will feel to be debt free.