How to compare personal loan offers beyond interest rates in New Zealand?

Personal loans are used by many New Zealanders for lots of different reasons. You might use a personal loan to buy a car, pay for a holiday or even fund your wedding. There can be a lot of different options, though, and you might wonder how to determine what the most appropriate loan is for you.

Many people focus only on the interest rate being charged, but that isn’t the full story. Interest rates alone don’t determine the true cost of the loan. Here we’ll explain the other factors that should be considered to make better borrowing decisions. Remember, the better finance™️ team is here to help you with this, too.

What is an interest rate?

When you look at the personal loans on offer, you’ll see a headline interest rate that will be charged. This represents the amount that the lender will charge you to borrow the money. It’s a percentage of the balance. In very simple terms, if you have a loan balance of $10,000, for example, and have an interest rate of 20 percent, that would be equal to $2000 a year.

Most lenders calculate the interest owing daily and then charge you fortnightly or monthly. 

The lender multiplies your interest rate as a percentage by the amount owing on the loan at the end of each day. That is divided by 365 to get the amount owed for that day. Then, this interest is added to the loan monthly. Your repayment should clear the interest payable for that month and a bit of the principal owing each time. Say, for example, you owe $20,000. Multiplying that by 0.1 to represent an interest rate of 10 percent and dividing by 365 gives a daily charge of $5, or $150 over 30 days.

Many personal loans are structured as table loans, so you make the same repayment throughout the term of your loan, but at the start, it’s more interest and less principal, and as time goes on, you pay off more principal and less interest.

Key factors to compare personal loan offers

There are other factors that are important to think about, too.

Fees and charges

Fees and charges can add to the total cost of your loan. You’ll probably pay an establishment or setup fee at the start of the loan, and you may also be charged a monthly or account fee. As well as those standard fees, you might be charged fees if you want to pay off the loan early or pay it off more quickly. You could also expect to encounter penalties and additional charges if you are late with your payments or fall behind.

If you know you’re likely to want to change the term of your loan, for example, or pay it off faster, it may make sense to look for a lender who won’t charge as much for this.

Loan term and repayment structure

If you can pay your loan off over a shorter period of time, you’ll usually pay less interest overall. That’s because the longer your loan term, the more time you have paying interest on an outstanding balance. A longer loan term can mean smaller repayments but a more expensive loan overall. It’s helpful to find a personal loan with a structure that matches your unique needs and financial situation. A comfortable fit is likely to be much easier to work with.

Repayment flexibility

Can you make additional repayments on your loan without being charged a penalty? If this is something you value, it may make sense to look for a lender who can accommodate it. You may also like to look for a lender who will give you the ability to change repayment frequency as required.

All lenders have obligations under the law in terms of how they deal with borrowers who are in hardship, but we can also advise you on how lenders approach different scenarios.

Total loan cost

It’s helpful to compare the total that your loan will cost you. As well as the interest, what will you pay in total fees? Seeing this as a total amount can make it easier to look at your options and see which is likely to work out most cost-effective over time.

Eligibility and approval criteria

Lenders all assess applicants’ income, expenses and credit history to determine whether they are likely to be able to service any loan they take out. But different lenders have different approval requirements and different lending appetites.

We can help you consider which lenders might be an appropriate fit for you and which are interested in the type of lending you’re trying to do. Understanding this early can prevent you from making unnecessary applications.

Lender experience and support

At better finance™️, we have a simple online process that can help to streamline your application.

Our team is here to provide support as required, and you can use our wide range of tools and loan repayment calculators to check out how your loan could work with different repayment levels or interest rates.

We’re available seven days a week to answer any questions you may have and can help you find a lending solution that is a great fit for you.

Common mistakes when comparing loans

Focusing only on the lowest advertised interest rate: 

There’s much more to the cost of a loan than the advertised interest rate. This is one important factor, but there are a number of other things that it’s really important to take into account.

Ignoring comparison rates and total repayment cost: 

Working out how much the loan is going to cost you in total can be really helpful, so that you can make a fair assessment of all your options.

Overlooking fees and additional charges: 

Depending on the lender and your own circumstances, fees and other charges can make a big difference to the total cost of your lending. It’s important to know what you can expect from the outset.

Choosing loans based only on lower repayments:

Lower repayments may mean a longer loan term, which can be more expensive.

Applying without checking eligibility: 

We can help you work out which lender may be a good fit before you go through the process of applying.

Comparing loans with different terms or amounts: 

It’s useful to compare like with like to get an accurate picture.

Want a hand?

We’re here and ready to help. If you want to look at what personal loan options are available and what might be suitable for you, get in touch with the expert team at better finance™️ today.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.