|Payday Loans Causing Problems
Home loans and other forms of finance seem
to be getting harder to access, with lenders pointing towards a responsible
lending code based on increased documentation and minimised risk. According to
non-prime lenders and finance brokers who specialise in debt consolidation,
loan applications are often rejected if the borrower has a history of payday
loans, which are often seen as a sign of financial problems.
Payday lenders have a bad reputation, but
they are also increasingly popular across New Zealand. Moola is one example
that has been in the news a lot recently, with this short-term lender
experiencing massive growth over the last few years. Moola recently placed
second in the Deloitte Fast 50 Awards, which makes it the second-fastest
growing company in New Zealand. Not only that, but it's the fastest-growing
technology company in the country at 1013 percent growth in three years.
While lots of Kiwis are obviously using
Moola, loans from the company and similar payday lenders are increasingly being
treated with suspicion. According to reputable brokers and lenders, both banks
and non-prime lenders such as Avanti Finance, Budget Loans, and Geneva Finance
are likely to flag customers who have a history of payday loans. According to
Instant Finance Chief Executive Richard de Lautour, “There are common things we
look at that indicate someone has difficulties... It’s fine if you borrow $250
and pay it back next payday, that’s all good. But that’s not what we’re seeing.
If we see a customer has a track record of going back and forth to payday
lenders that’s a big concern for us."
According to an unnamed broker in an
interview with interest.co.nz, “If there’s a payday lender like Moola on the
bank statements it’s declined straight away... It’s more of a negative than
their existing credit rating.” While lenders need to look at 90 days’ worth of
bank statements before they will approve a loan, the ultra-high interest rates
and high default rates associated with payday loans are often more than enough
to get someone blacklisted.
According to Richard de Lautour, the growth
in this market is problematic: "There’s certainly been growth in the
payday lending and that is a concern to all responsible lenders... Our
experience in dealing with payday lenders is they are acting responsibly and do
get credit reports done where appropriate. But we don’t get involved in whether
a lender will give someone credit. We just provide the information and from
there they make their own decisions based on their appetite for risk and their
Not only does the existence of a payday
loan act as evidence that someone has financial problems, it also means they're
tied to a financial agreement with a very high interest rate. While Moola are
at least self-aware in their marketing material, saying "when you see our
annual interest rate you might have a slight freak out", that isn't nearly
enough to justify the massive 620.5 percent annual interest on short-term loans
and slightly less ridiculous 328 percent on longer-term loans.
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