A bad credit score does not have to be the reason why you don’t get a loan in New Zealand. After all, as the saying goes, your past does not have to affect your present and future.
If you can prove to the lender that your financial situation has changed and your credit behavior is now different, you stand a chance of getting credit from your bank. Lets start with finding out what is bad credit and how we can get a loan.
What is bad credit ?
Financial institutions use a metric called credit score to gauge your overall creditworthiness. It shows whether you are likely to repay the loan or not. The higher your credit score is, the more likely for you to get a loan with better terms.
A poor credit score (Also called bad credit) means that according to your borrowing history, you are more likely to default on your loan payment.
If you make your monthly loan payment promptly, your credit score improves. The vice versa is also true.
In New Zealand, there is no agreed-upon figure that determines a good credit score because every lender calculates their score based on different determinants.
Risk and interest rate
In New Zealand, there is no bad credit blacklist. This means that there is no official national record of people who default on loans. However, banks keep their records of the creditworthiness of their borrowers.
Credit Reference: The data on how different borrowers in New Zealand repay their loans is given to the credit reference agencies by the lenders. These agencies then furnish the information to any other lender upon request. This way, they will be able to tell how likely you are to repay the loan based on your past loan repayment behavior.
Loan defaults : If you have defaulted on a loan before, chances are high that you will not be treated as a normal borrower when you visit your banker to get credit. They will judge you based on your history. However, many banks will still lend to you even if your credit history is not very impressive.
High Interest Rates : Borrowers with bad credit are treated as risky borrowers. It, therefore, means that the interest charged has to be high. This happens because the interest rate on a loan is supposed to reflect the risk involved. A higher interest rate on risky borrowers who end up repaying their loans will substitute and avert the possible loss of revenue to the bank if and when other risky borrowers end up defaulting. This way, the lender does not have big figures in the bad debt book.
Bad Credit Loans: Therefore, as you apply for a bad credit loan, you may have to be ready to pay an above-average interest rate on your loan due to the high risk involved on the lender’s side. With the lending interest rate in New Zealand at around 9%, you will have to pay between 12-30% P.A as a risky borrower.
How to apply for a bad credit loan
The process of applying for personal loan with bad credit in your bank will still be the same as a normal loan. It is the review process and the terms of the loan that will be different. To apply for a loan, there will be several requirements. Some requirements may vary from bank to bank but most of them are mandatory irrespective of the bank.
There are 2 options:
Apply for credit from your bank.
Apply for credit from a financial institution that specializes in lending bad credit.
What You need :
For most banks, the applicant has to be over 18 years. However, some banks allow minors to do loan applications but they have to be accompanied by their parents when doing the application.
You will need a valid photo ID. Your passport or your driving license will do in this case. For a non-NZ resident, you have to provide your valid passport.
You will have to have a valid reason for taking the loan. Will you use the loan to buy a home, buy a car, buy an investment, grow your business? Etc. Have a figure in mind of how much you need based on the intended use.
You will have to tell the bank how you earn your money. This enables them to gauge the risk level involved.
Provide your physical address. Where do you live? This allows the bank to find you in case they cannot reach you through any other means. It also allows them to get you in case you default.
The Bad Credit Loan Companies
The lenders allow you to apply either in a branch or over the phone. Since you are credit history is not good, you will have to convince the bank beyond reasonable doubt that you will repay your loan. They will have to know that your past does not apply in the present and the future. This can be done in many ways which we will discuss in the next article.
If you think that the first option does not suit you, you can approach a financial institution that specializes in lending to customers with low creditworthiness. However, these institutions tend to charge a higher interest rate than normal lenders.
The review process
The review process will be rigorous. They will have to know for sure that you will not default. After all, banks are in the business of making money, not losing it.
The lender will review the documents you presented. They will also analyze the ability of the project you want to finance using the loan to bring income for you to be able to settle your loan repayment.
Many lenders will also choose to visit your residence and your business premises to ascertain the correctness of the information you provided.
After they are sure that they can recover their money, they will approve the loan but continue keeping a close eye on you and your activities because you are a high-risk borrower.
Bad Credit Loans
Where there is a will there's a way
Do not let poor credit history be a hindrance to your getting to your dreams. Prove that your past is gone, the present is different and the future will be better and you stand a chance of getting credit even with a poor history.