Bad credit loans are available with a range of lenders in New Zealand, but often come with the risk of high annual interest rates. At Pronto, your credit rating plays a very significant part in generating your Pronto Client Rating, which is the key part of our loan assessment. As your credit rating plays such an important part in this we don’t offer bad credit loans like some lenders, but we feel it’s very important for borrowers to have information about what to expect if they’re looking for a bad credit loan. If you’ve got bad credit and are looking for finance, it’s very important that you do your research and shop around to make sure any obligation you take on isn’t going to put you in a position of difficulty.

What is bad credit in NZ?

Bad credit is when you’ve defaulted on payments and it has negatively impacted your score with one of New Zealand’s credit bureaus. There are a few different credit bureaus, Centrix, Equifax and Illion being the major ones. These companies compile a range of data about a person to create a credit score. This score is then used by lenders to determine whether you are creditworthy or not. Bad credit can be interpreted as different things, but usually a lender will consider you to be a high credit risk if you have defaults on your credit profile.

What is a bad credit loan in NZ?

A bad credit loan is generally one which allows a customer with a bad credit rating to borrow money, and the lender charges a higher than normal annual interest rate. They justify this higher rate by the increased risk of default, based on the borrowers history. Bad credit loans are offered in a variety of formats, whether its payday loans, term loans or through high interest credit cards.

How does a bad credit loan compare to standard loan?

Generally the annual interest rate is the big difference with a bad credit loan. It’s vital that you check what this will be before applying for a loan, and then ensure you consider the total cost of borrowing when comparing lenders. There are usually a range of fees with each loan in NZ, so you want to be sure to calculate what effect these will have on the total amount you pay back. Whilst not always the case, in general, a loan for a person with a good credit rating will be cheaper. At Pronto, the higher your Client Rating (which takes into account your credit history) the lower the annual interest rate will be.

How can I find out if I will get a bad credit loan or a standard loan?

You can access your credit rating before applying for a loan. This is a great thing for everyone to do so they know in advance where they stand. Some lenders might charge you a higher than normal interest rate, but if you know your credit rating is clean then you can go back and negotiate with them for a fairer rate. And if you do have some negative marks on your credit profile, then you may be able to explain these to a lender to help you get a lower rate. You can access your credit profile for free at https://www.centrix.co.nz/my-credit-score/ and https://www.creditcheck.illion.co.nz/ and http://mycreditfile.co.nz/my-credit-file-standard.

What are the options for a fair loan if I have bad credit?

This really will depend on how bad your credit is. You have to remember that the lender is looking at your history and if it’s bad then they will see a huge risk of you not paying back the loan you’re applying for now. So put yourself in their shoes and think of ways that you can show them you’re a safer borrower than your credit history suggests. One major way to do this is to offer something as collateral. In NZ there are a lot of lenders who offer bad credit loans to customers who have a car as security. Our secured loans do need a good credit history, so we’re not going to be able to help out if you do have bad credit sorry. Again it will depend on how bad your credit is for each lender and what sort of risk they’re willing to take. Another key feature of most responsible lenders is the assessment of your affordability. At Pronto we use an advanced affordability algorithm to assess all of your income and expenses over the past 90 days. This ensures we get an accurate idea of how you earn and spend your money and we can easily see if you’re able to afford the loan repayments without suffering any hardship. So if your bank statements are in a good order, and by that we mean there aren’t any dishonours, you’re regularly paying your bills, there isn’t a huge overdraft that isn’t being reduced and you’re generally being responsible with your money, then the lender should be able to use that to positively influence your application.

Using a car as security to get a bad credit loan

Secured loans generally have a lower annual interest rate because the lender has the fall back position of a vehicle to repossess if you don’t pay. So if you do own a car freehold and you’re confident you can afford to repay the loan without any difficulty, then offering it as collateral may be the best way to get a low interest loan if you have bad credit. Be sure to consider all of the risks before you do this though. If you’ve had bad credit in the past, ask yourself how you got in that situation. And if you think there is even the slightest risk it will happen again, you may not want to go ahead with the loan. Secured loans for bad credit borrowers aren’t always cheap, so again be sure to do your research. The total cost of borrowing will allow you to directly compare lenders, and be aware of default fees if you have a history of missing payments. Obviously no one intends to default when they get a loan, but you’ll know from your past experiences what the risks are, and it’s really important for your future credit history that you consider this before taking on any financial commitment.

As we mentioned earlier, we place a huge importance on a persons credit rating when they apply for a loan. We’re not trying to penalize those with a bad credit history, we just know from experience that sometimes the best thing to do for the customer is to decline the application, so they don’t get themselves in a position where they’re worse off than before. However we want everyone, not just our customers, to make the most informed decisions when it comes to borrowing money. So if you have any questions about credit ratings and bad credit loan options, feel free to contact us for a chat. We can’t give financial advice, but we may be able to answer some generic questions relating to credit ratings and borrowing money.