Higher-cost loan options
These types of loans tend to have higher interest and fees. Because of this, even if you make repayments on time, the total cost ends up being much more than other kinds of loans. If you miss payments or go into default, additional fees and interest are charged.
With any loan, the best way to keep the cost down is to keep up to date with your repayments and only borrow what you need.
The lender doesn't need you to list items as security. If you default on an unsecured loan, the lender cannot take any of your possessions. These kinds of loans tend to have higher interest rates than a secured loan as the lender doesn't have the security items as a back-up.
Your bank has not agreed to your balance falling below $0 and charges you extra if you don't have enough in your account to cover all payments. Fees include a standard fee as soon as your account dips below $0, plus extra interest rates the longer your account is in overdraft.
With an agreed overdraft your rights are covered by the Credit Contracts and Consumer Finance Act, but with an unauthorised overdraft they are not. See your rights below in If things go wrong.
Payday loans, sometimes called cash loans, can be a tempting option when you're under pressure, particularly if you have bad credit and get turned away by other lenders. But the overall cost of borrowing tends to be much higher than other options.
High costs come from:
- interest rates — high-cost loans have annual interest rates of 50% or more, higher than a credit card or unarranged overdraft.
- fees, eg establishment and admin fees which can stack up. If you miss a payment, you will likely pay additional default fees.
The Credit Contracts and Consumer Finance Act limits how much lenders can charge on interest and fees for high-cost loans:
- Lenders cannot ask you to pay back more than twice the amount borrowed.
- They cannot charge more than 0.8% of the unpaid loan balance in interest and fees per day when averaged across the loan term — and cannot charge compound interest.
- Default fees for missed payments must be $30 or less.
The high cost of payday loans often means high repayment amounts over a short period of time. This can be difficult if your income is not consistent.
High-cost lenders often only talk about the weekly repayment amount, but it's important to understand the true cost over time.
Work out the overall loan cost with this calculator on the Sorted website:
Debt calculator(external link) — Sorted
Other high-cost lending includes:
If you are struggling to pay, talk to your lender. They might agree to change your payments, or you could apply for hardship.
If things go wrong
If you are having problems with your lender, eg unexpected fees, misleading information on interest rates, or think you should not have been given the loan, follow these steps — you might not need to do all three:
- Contact the lender: Talk to the lender or broker as soon as possible. Many issues can be solved at this step.
- Contact the lender's dispute resolution scheme: If you and the lender can't agree, get independent help to solve problems.
- Report the lender to the Commerce Commission: This government agency gathers information to identify lenders who break the rules. It doesn't take on individual cases, but acts against lenders who often break the rules.
1. Contact the lender
Before you make contact, read our information on:
- your rights
- how to complain.
A free financial mentor can help you contact the lender, or talk to the lender for you. Start by contacting the free helpline MoneyTalks.
Contact information(external link) — MoneyTalks
How to complain
- Check your credit contract — this should list all fees, and explain when you might have to pay these costs.
- Gather proof, eg if fee amount is more than what's listed in your contract or on their website, differences between your lender's fees and most others.
- Think about what you will say, making notes with points you want to cover.
- Decide your ideal outcome, egreduce or cancel the fee.
During the conversation:
- Take notes — include dates and what was said. If you need to take your complaint to the dispute resolution scheme, this will be helpful proof.
- Stick to the facts — explain the problem and share any proof.
- Say what you want — explain your ideal outcome.
- Take time out — if it gets heated, or you want to think about their response, arrange a time to call or email back. Explain you need time to digest the conversation.
- Make it official — if you reach an agreement to reduce or waive (cancel) a fee, get it in writing. It's a good idea to get your contract updated.
Most credit contracts and loans give you rights under the Credit Contracts and Consumer Finance Act (CCCFA).
- Follow lender responsibility principles, guided by the Responsible Lending Code.
- Check the loan is suitable, eg ask about the purpose of the loan, the amount you need, if you want to be able to pay off lump sums, any extra products you might want, if you are likely to want to top up your loan.
- Check you can afford it, eg ask about your day-to-day expenses like travel and food.
- Help you understand the loan, eg provide key information in writing like repayment amounts and how interest is calculated.
- Limit interest and fees for high-cost loans to no more than 100% of the amount borrowed, and no more than 0.8% of the unpaid loan balance in interest and fees per day when averaged across the loan term.
- Default fees must be $30 or less.
- Make sure the loan is not oppressive, eg the lender's behaviour and the loan contract itself cannot be extremely unfair or unreasonable.
Failure to do so can result in a refund of interest and fees and or damages to the borrower.
What you can expect from your lender(external link) — Commerce Commission
- Give accurate and complete information: If you lie about your income or costs, then later have problems paying, the lender may not be held responsible if they had no good reason to believe you gave incorrect information.
Credit Contracts and Consumer Finance Act
Loans not covered under the CCCFA:
- Buy now, pay later plans
- Unarranged overdrafts
But you do have rights under these laws:
- Fair Trading Act: Lenders must not mislead you, including in adverts or in contract terms (rules of the document you signed), eg adverts for 4% interest but charging you 6%.
- Consumer Guarantees Act: Lenders must not provide sub-standard services, eg they need to use a reasonable level of care and skill, and complete your work in a timely way.
Fair Trading Act
Consumer Guarantees Act
2. Contact lender's dispute resolution scheme
All banks, lenders and financial advisers must belong to a financial dispute resolution scheme. This independent body can:
- give you information about how lenders should act
- share tips on how to complain to your lender
- look into certain complaints when you and your lender cannot agree on a solution.
It's free for you talk to them and make a complaint. Or a free financial mentor can do this for you. Start by contacting the MoneyTalks helpline.
Free confidential advice(external link) — MoneyTalks
There are four financial dispute resolution schemes. To find out which your lender belongs to, you can either:
- Ask your lender.
- Phone any one of the four schemes to find out. For contact details, see:
Financial dispute resolution schemes
You can also check the lender's entry on the Financial Service Providers Register:
Search the register(external link) — Financial Service Providers Register
Disputes resolution schemes can only consider complaints up to a certain amount. Check with your lender's scheme to see their limits.
If the scheme investigates your complaint, it might recommend the lender:
- refund some fees or interest
- agree a new repayment plan, eg restructure your loan
- switch to a more appropriate interest rate.
3. Report your lender
The Commerce Commission enforces certain consumer laws, including the Credit Contracts and Consumer Finance Act. This is designed to make sure businesses lend responsibly, eg to check loans are affordable and disclose all interest and fees.
Commerce Commission doesn't act on behalf of individuals and can't investigate every complaint. But their investigations do help make sure businesses comply with the law. Your information helps them assess which consumer issues cause greatest harm.
Make a complaint(external link) — Commerce Commission
Credit Contracts and Consumer Finance Act
Get support at any point from:
- MoneyTalks: This helpline gives free budgeting advice to individuals, family and whānau. Financial mentors can help you understand your financial situation, organise your debt and plan for the future. They can also put you in touch with a local budgeting service and help with issues you're having with lenders. Phone 0800 345 123, or use live chat, email or text, if you prefer.
Contact information(external link) — MoneyTalks
- Citizens Advice Bureau (CAB) — a free, independent service, run by volunteers. CAB can advise you on your consumer rights and obligations, in person, by phone, or online.
A CAB near you(external link) — Citizens Advice Bureau