Your credit history

All lenders will run a credit check when you apply for a loan, and they use your credit history as a major factor when assessing your application. If you’ve borrowed money in the past and paid it back then your credit record will have improved. But if you’ve defaulted on a loan, or skipped on something like a power bill, it will be adversely affected. Before you go and apply for a loan it’s a good idea to check your credit score yourself, that way you know what to expect before you come in contact with a lender. Centrix are one of New Zealand’s largest credit bureaus and you can access your own credit report for free at Centrix’s website. Take a look and see where you stand.

Whilst there are a number of factors that go into getting your credit score up, some of the simple ones include

• Not having too many debts at once: be sure to only borrow what you need, as a lot of outstanding debts will have an adverse effect on your credit score.
• Pay on time: with the new comprehensive credit reporting, companies now report on a monthly basis and will show when you fall behind or keep up to date. But the good news is that they will also show when you pay your bills every month.
• Don’t apply for too many loans at once: it’s ok if you’re just getting a quote, but if you fill out applications all over town there’s a chance it will adversely affect your credit score.
• Keep your contact details up to date: by keeping your current lenders in the know, you can have a positive impact on your overall score.
• Monitor your credit score: keep an eye on your own credit profile and report any unauthorised enquiries.
• Be careful what kinds of loans you apply for: with a range of different products available most credit bureaus will adjust your credit score based on the types of lenders you’re using. For example, a mortgage is a very different financial product to a payday loan, and your score is likely to be affected differently with each of these.

Secured versus unsecured

Personal loans are generally secured by an asset or they are unsecured, meaning the lender can’t take any physical items to recover their money if you default. And the annual interest rate is often adjusted accordingly. This reflects the risk that the lender is taking on, and when they have an asset to fall back on they will usually be able to offer you a lower rate.

• Secured loans use a specific item as collateral. In New Zealand you generally don’t have to hand the item over to the lender, but they register an interest in it via the Government’s PPSR, which means that if you don’t pay then they can repossess that item to recover the debt. Most often a secured loan is offered over a vehicle, and you keep the car in your possession unless you fail to make payments and fall severely behind. There’s a range of protections for borrowers with secured loans, so it’s always a good idea to thoroughly read the contract before you sign it. But the beauty of a secured loan is that your interest rate should be much lower, because the lender has some recourse should the loan go bad.
• Unsecured loans are offered with no fall back for the lender. The money is advanced with you as a person being bound by a contract, and if you don’t pay the lender generally only has legal action as an option. Again this varies from lender to lender, and some payday loan companies use wage deductions which you should be very careful about before signing. The downside of an unsecured loan is that there is generally more risk for the lender, so they charge a higher annual interest rate.

So what does this mean? Well, if you have an asset you can use as security then it’s a good idea to offer it when applying for a loan. By putting it forward you’re reassuring the lender that you will pay and therefore they will give you a lower annual interest rate.

Consistency

A lot of lenders look at a borrowers consistency, whether it be in their job, at their address or having a regular income that doesn’t fluctuate. Whilst every lender is different, you will often be better off if you can prove that you are a consistent and reliable person. Unfortunately we can’t all control things like where we’re living or how long we stay in a particular job. But if you do have the benefit of this, it’s always a good idea to highlight it in your application. A lender will be reassured if you’ve been in a job for a long time because the liklihood of you staying there and having a predictable income throughout the life of the loan is high.

Previous history

If you’ve had a good loan in the past, whether it’s from the same lender you’re looking to use now or another one, it’s a good idea to mention it. Almost all lenders use your history as a barometer for your future risk, so if you can show you stuck to your payments on your last loan then it’s definitely going to improve your chances on a new one. Whenever you repay a loan it’s a good idea to ask for a statement, and keep that stashed away so you can present it to another lender in the future.

Get yourself a lower annual interest rate

These are just a few things that will help you get a low interest rate on your next loan. Always remember that each lender is different, so they will put a different emphasis on different things. You can always ring them and ask exactly what it is they look at. Pronto Finance for example uses a unique client rating technology, with hundreds of different data points. But the key points are very similar across most lenders. Be sure to play to your strengths and put your best foot forward.