Loans are so easy to get.
Google the words: "I want a loan" and you'll be offered the Earth. Up pop the words: "Quick cash", "money in your account within 60 minutes", "simplify your debt", "same day loans", "design your own loan", "Satisfy any shopping urge", "take your family on a much-deserved trip".
It sounds so friendly.
But there is money to be made lending cash to Kiwis to fulfil their every whim — and the sharks are circling.
Loans don't always "make life easier". They can spiral out of control. Borrowers get black marks on their credit records and can end up bankrupt and even suicidal in some instances.
Here are some everyday disasters that those in the industry see.
Robbing Peter to pay Paul
When borrowers get in a financial pickle the first instinct is to borrow more, says Rob Collins, general manager of NZCU Auckland, a credit union. "They think, 'Oh, I can't pay this, I'll just get a top-up, it will put me right'." But a week later they still can't pay, and get another top-up.
Taking out more than you can afford
It's too easy to get a car loan here, an HP there, a line of credit here, an Afterpay loan with Trade Me, a GEM and Q Card and a couple of credit cards. Then something unexpected happens and the house of cards collapses.
"You lose your job, your relationship breaks down and you can't pay," says Collins. Responsible lenders who work within the Credit Contracts and Consumer Finance Act aren't supposed to let you borrow if you can't afford to pay, but that doesn't always happen.
Not understanding the interest rate
There is a big long-term difference between paying 12 per cent and 20 per cent on a personal loan. Even worse, borrowers sometimes take out loans at a daily amount. Moola's 1.5 per cent a day adds up to a 547.5 per cent annualised interest rate. Most lenders have stiff fees and penalties as well.
If you don't pay your bill in full each month, the debt grows and grows. Even credit card debt will inflate if the borrower only makes the minimum payment.
When you take out HP/interest free deals, you're given a store/credit card, which you can often use in more than one retailer. Cards such as Q Card or GEM Visa then shower you with offers to encourage you to buy more.
You'd assume that your monthly payment would go towards paying down the first item you bought.
But that's not always how payments are allocated. Instead, your payment on your TV might be allocated to your mag wheels that you bought later, meaning the original purchase is not paid off before the interest-free period expires, says Collins.
Borrowers often don't realise their monthly car repayments may not pay off the full loan and find at the end of the term they still owe thousands of dollars in balloon (AKA residual) payment.
Sticking your head in the sand
If you can't pay your loan the best thing to do is contact your lender as soon as possible, says Susan Taylor, chief executive of Financial Services Complaints Limited, an independent complain resolution service.
"Missing one or two payments can be fixed. Missing multiple payments can spell disaster."
Not having adequate insurances
It can be tempting not to take the payment protection insurance with a loan. Beware, however, of paying for this insurance if you're unemployed, self-employed or work less than, say, 20 hours a week, because you're likely to be paying premiums for nothing.
Losing the security
Sometimes the lender may have security over more than one car or other item, says Taylor. If you default on one loan, they can in many cases take the security related to other or previous loans.
Where it's a scam
FSCL has seen a spate of complaints lately where Kiwis have mistaken a scam site for a bona fide loan company and paid a loan application fee of several hundred dollars up front, but never received their "loan". Always check the lender is registered on the Financial Services Provider Register, says Taylor. Do this by Googling "FSPR" and entering the company's name in the search box.
If you do find yourself in trouble, seek help from a budget adviser. They can negotiate with lenders on your behalf. You can also complain to the dispute resolution service your lender belongs to.
Most lenders are good and act fairly and legally, says Taylor. But commission can lead some to take unlawful, unfair or oppressive actions.