Personal loans are traditionally unsecured
As their name suggests, personal loans are taken out for covering important personal expenses. You can use such a loan to buy a big ticket item like a flat-screen TV, to renovate your home or to finance a family holiday.
There are absolutely no limitations to the way in which you will use a personal loan. You do not have to place an asset as security in order to get approved. They are often called signature loans because you can obtain them just by signing the required documents.
Understanding unsecured personal loans
Unsecured personal loans are available without using an asset as security. The lender will check your income to confirm that you will be able to afford the loan to get you approved. With such unsecured or bad credit loans, lenders take higher risk than with their secured counterparts. That is why they charge higher interest rates. Still, given the high level of competition in the loan market, most rates are quite attractive.
There is another factor which makes the unsecured loans different from the secured ones. Since the risk for the lender is higher, they are more difficult to get. You need to ensure that your credit record is good. For this, you can request a copy from any of the three reporting companies in New Zealand, Centrix, Veda Advantage and Dun and Bradstreet.
Unsecured loans should not be used carelessly, even though they are less risky for the borrower. If you default on the repayment of the loan, this will be entered in your credit record and will reduce your chances of getting finance in the future considerably. The lender will use legal means to get the money which you owe to them. If they sue you and win the case, they will gain the legal right to take over one or more assets of yours in order to cover your debt. You would not want to get into such serious trouble just because you are not careful about borrowing.
Personal loan amounts
With personal loans in New Zealand, you can borrow from as little as NZ$ 100 to as much as NZ$ 50,000 without placing security. The lender will determine the loan amount which they can extend to you based on your income, spending and credit history. If you have high disposable income and exemplary credit record, you can take out a large loan amount and secure a competitive interest rate as well. You may be able to borrow more if you have a good relationship with the lender as well. Keep in mind that you are the one who makes the final decision on the loan amount. It is best if you calculate how much money you will need precisely in order to avoid borrowing more than you need.
Personal loan repayment terms
The loan repayment term can vary from as little as 7 days to as long as 5 or 6 years. It depends primarily on the loan amount. In general, a shorter loan term will result in interest being charged for a shorter period of time. This will make the cost of borrowing lower and you will be able to save money. However, a longer term will result in higher regular payment. Since most lenders enable you to select the term, you should pick wisely. The best strategy is to pick a term which makes the regular payments perfectly affordable to you. You should have sufficient income left for covering your living expenses.
Choosing a personal loan in New Zealand
The most effective strategy for getting the best deal is to compare various loans from as many lenders as possible. You should definitely obtain a quote from your bank as well. Typically, banks have special offers for their loyal customers.
The main factors which you need to base the loan comparison on include interest rate, fees, total cost and repayment structure. You have to ensure that you will be able to repay the loan comfortably given your income and spending. Otherwise, you should opt for a smaller loan amount which you can afford or look for another loan with lower interest rate and regular payments.
Last, but not least, you have to confirm that you have a good credit rating before you apply for a personal loan. This will give you high chances of approval.