Chances are in the past couple of months you’ve seen or heard some rather scary stories about so-called ‘pay day lenders’.
TV news and social media ran stories in June about how the Commerce Commission is taking one business to the High Court of New Zealand over allegations of irresponsible lending.
Naturally, the story has caused everyday Kiwis to pay attention to this business, and others like it.
If the story worries you…
Or makes you second guess whether it’s smart or safe to borrow money in New Zealand right now…
Because here at Loanplace we think the more educated and aware you are about borrowing money, the better.
The better it is for you, for businesses lending money… for the whole industry.
So, in this brief post, we’re going to address a few important points.
The point isn’t to sell you anything (though of course our business is providing fair finance to everyday Kiwis — more on that here).
Our objective here is to explain what’s going on with the Commerce Commission’s case… and show why the kind of lending practices they are aiming to crack down on are, in fact, bad for everybody in the finance industry.
‘Finance Company’ Does Not Equal ‘Pay Day Lender’
That’s the interest rate some people have been agreeing to when they’ve taken on what’s known as a ‘pay day loan’.
If someone is in the position where they need to borrow money at an interest rate that high… how can they reasonably be expected to repay more than SIX TIMES that much money?
It’s pretty basic.
If you find a lender offering money at an interest rate like that, you must understand the repayment demands.
For now, this sort of thing isn’t illegal. That’s probably going to change very soon.
But in the meantime, we advise you not to accept any loans at interest rates that could make your financial situation worse, not better.
(Loanplace doesn’t ever approve a loan with an interest rate higher than 25%.)
Why We’re HAPPY There Are People Complaining About Us Online…
If you look around our social media pages, you’ll find people commenting that Loanplace is “a scam” and complaining that we’re discriminating against people by not lending money to those who don’t have enough income or assets.
This is criticism we’re happy to have.
Loanplace exists to provide fair finance to everyday Kiwis with friendly, fast and personal service.
We aren’t here to arrange finance for people who can’t afford it…
Whose financial situation means a loan would actually hurt rather than help them…
Or to force those who don’t understand the rules of borrowing money to pay back four, five or six times the amount they borrowed.
In other words…
We feel it’s far better to have people complaining that we won’t approve their finance application that to have customers who can’t afford to make the repayments on their loan.
If A Loan Is Bad For You, It’s Ultimately Bad For The Business You Borrow From
A high interest loan that takes you years to repay and potentially damages your credit rating is, obviously, not the most sensible option.
But it’s not just bad for you if you can’t afford to pay it back.
It’s actually bad — over the long term — for the business who lends you the money.
Think about it.
If a business approves loans for 100 customers and only, say, 10 of those customers actually manage to repay it, then the business is in trouble.
This is why you find companies like those the Commerce Commission is targeting charging massive interest rates — they’re trying to cover their costs and protect themselves from customers failing to pay their loans back.
To us, that’s a pretty bad business model.
Not just because it puts customers in financial difficulty.
But because it creates uncertainty and unsustainable conditions for the business.
Our model is different.
We only approve loans for customers who understand their repayment obligations and have a reasonable chance of paying back their loan without entering significant financial hardship.
Our team of professional finance consultants don’t approve loans for everyone (see the complaints on our Facebook page).
In fact, we’re so serious about providing fair service to our customers and creating a sustainable business that we’ve invested in creating proprietary software that allows our team to accurately determine whether it’s sensible to offer a loan to a customer.
We also specialize in debt consolidation.
This involves looking at our customers’ existing loans and repackaging them into one debt at a lower interest rate.
In other words, we believe that what’s in our customers’ interests is in our interest (and that insanely high interest rates are not good for you OR us in the long term).
So, if you’ve seen the stories about the Commerce Commission’s case against ‘pay day’ lending in New Zealand…
And that’s made you think carefully about the rules and realities of borrowing money…
We encourage all our customers to familiarize themselves with the conditions under which they borrow money from any third party.
For more information, please check out this article about Responsible Lending: https://www.consumer.org.nz/articles/responsible-lending