New Zealanders from all walks of life apply for personal loans every day. The most popular reasons include debt consolidation, big one-time expenses such as weddings or funerals, as well as urgent money needs such as car repairs, medical bills or children expenses. But there are thousands of other reasons people get personal loans, and if you meet the criteria and get approved, you are free to spend the money on what you want to such as home renovation and holidays.
​

• A secured loan is a loan where the borrower pledges some asset (e.g. a car) to the lender as collateral for the loan. Should the borrower be unable to repay the loan, the lender can take possession of the asset (i.e. by repossessing the car).
• An unsecured loan is a loan where there is no security, so the lender takes a greater risk that they will be repaid. Unsecured loans include credit cards and student loans.
• The difference is between the loans is mostly the interest rate. A secured loan is seen to be less risky for the lender, so often (but not always) there is a lower interest rate compared to an unsecured loan. 

​

Most banks have a minimum borrowing amount, which is around $2,000. Because personal loans are flexible, there is no maximum amount you can borrow nor a date you need to pay it all back by. Lenders take into account your income, credit history and savings levels among other things when they assess your ability to repay a personal loan. In doing so, they will also determine a range of suitable repayment terms.

Our Tip: To have a happy borrowing experience, borrow as little as you need and repay it as quickly as possible. This limits the interest you pay on the loan.
​
Caution – while borrowing over a longer period means lower monthly repayments, it massively increases the amount of interest you will repay overall. For example, borrow $10,000 at 15% over two years and the interest cost is $1,600. Borrowing the same over 5 years and it’s $4,300!
​

Repayment insurance is a policy that covers the repayment of your loan if you have an illness, redundancy or other qualifying situations. You'll pay a premium on top of your loan repayments, usually a % of your overall balance outstanding. i.e. 0.5% of your loan balance, paid monthly. 

Some lenders may offer repayment insurance to cover you for specific changes in circumstance, so it’s worthwhile asking about that and making sure the policy provides a suitable level of cover. Merely repaying the loan for a limited number of months won't help you - challenge the lender to prove why you need it, and be sure to understand all the benefits. 
​​

• If you repay your loan on time, then a personal loan will improve your credit rating as you are proven to be able to meet debt obligations. If you are late in paying or fail to repay your loan, your credit rating will suffer. Our credit score and credit check guide outlines everything you need to know.  
• Under the Credit Contracts and Consumer Finance Act, you can make a “hardship application” if your circumstances have changed significantly and prevent you from repaying your loan. This is relevant if you fall ill or lose your job. However, you must do this as soon as possible. Otherwise, the bank will see an unpaid balance and start collections.

• If your loan is secured, then the lender will take legal action to take possession of the asset. In such cases, this will involve a repossession.
• If your loan is unsecured, the lender will likely pass your debt on to a debt collector, who will chase the debt with personal visits to your home and/or workplace, repetitive phone calls, letters and email reminders.

​Top Tip: Don’t take out a loan you can’t repay. Any late payment, even one day late, will hurt your credit score and make getting loans or other credit later on harder.

A personal loan differs from a mortgage loan or student loan. It allows you to borrow a specific amount over a fixed period of time, usually 2-5 years, at a fixed interest rate. This differs from other bank credit like overdrafts and credit cards, and it can be unsecured (i.e. no collateral required) or secured (i.e. the loan is secured over a car or other personal property). 
​
To outline how a personal loan works, take this example:

• Mike borrows $10,000, to be repaid over two years at 10%. Mike knows at the start of the loan what he needs to repay each month, meaning he can budget accordingly.
• Mike will also know the total cost of the loan (i.e. $10,000 + all interest charges) so he can compare the offer between other banks and finance companies. 

​

​All Kiwi lenders charge a fee for setting up a personal loan, ranging from $100 to as much as $750, and possibly higher. Additionally, there may be “early repayment fees” which are charged if you pay back the loan before its due. ​​