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Borrowing smaller amounts
For a wedding, a medical bill, a holiday or a few big purchases, a personal loan is quick. But if you own a home, there may be a cheaper way.
By Yatin Kainth, Financial Adviser FSP1007497. Last reviewed
Short answer
Personal loans in NZ are usually unsecured loans of $2,000 to $50,000 over one to seven years, with rates well above home loan rates. If you own a home, a mortgage top-up is often cheaper, but only if you repay it over a short term. Spreading a small debt over 25 years can cost more interest in total than a personal loan.
Compare the real cost of each option. The third line is the one most people miss.
Personal loan: monthly / total interest
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Mortgage top-up over the long term: monthly / total interest
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Mortgage top-up paid off over the personal loan term: monthly / total interest
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Example rates only. Fees not included. A top-up is only cheaper if you pay it off over a short term, as the third line shows.
Under the Credit Contracts and Consumer Finance Act (CCCFA), lenders must check that the loan is affordable and suitable. Expect questions about income, regular spending and other debts, and a credit check. Good credit history, stable income and low existing debt get the best rates.
Rates vary widely with your credit and the lender, from around 9% to over 20%. Fees can add a lot, so compare the total cost.
The rate is lower, but only cheaper overall if you repay it over a similar short term. Over 25 years, a small top-up can cost more interest than a personal loan.
Yes. Banks count your personal loan repayments as an expense, which reduces how much you can borrow. Pay it down or close it before applying if you can.
Usually, yes. Some lenders charge an early repayment fee. Check the loan agreement.
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