Jodi Green may have to rely on a loan from a payday lender to get through Christmas this year.
“I want to give Christmas to my 10 month old and 14 year old and I just can’t stretch it without help,” she said.
“On top of that, I have a tumor on my tongue that is about to be removed and I have to pay for my daughter’s day care while I am in the hospital.
“I know my daughter said she didn’t care, but I’ve been away and this year has meant so much.”
Green said she wanted to be able to buy her daughter her “wish list,” but it was things like a cell phone, designer clothes or new makeup.
“I mean, I can go to the Salvation Army, they prepare a food package and a gift for me, but I guess I think it won’t be on her wish list and I really want her. have a good day… she suffered so much. “
Green has an advantage and said loan repayments will be difficult. She would like a loan of around $ 400. “Without the greatest credit, my options are not great and will be very attractive.”
She plans to go to Pretty Penny, which has interest rates of 365 percent per year.
“They gave me one before – I think it cost me almost four times what I borrowed though… I was also told to look into Cash Converters.”
Waikato’s mother, Celena Tommo, is also counting on the credit this Christmas – she chose to top up a loan she has with Aotea Finance to purchase gifts.
She has a limit of $ 1,500 and must pay 22.95% interest. Tommo makes payments of $ 80 a week and almost paid it off when she had to borrow again. “I have a big family.”
But there is a warning that the reliance on loans, especially from high interest lenders, can quickly get out of hand.
Tom Hartmann is the personal finance editor at the Commission for Financial Capability.
He recently researched the cost of borrowing and found that payday lenders charge, on average, interest rates of 468% per annum.
Lenders point out that their loans are short term, but even so, the daily interest rate is often around 1.5% per day.
“A $ 100 loan repaid after two weeks would be $ 121,” said Tim Barnett, chief executive officer of the National Building Financial Capability Charitable Trust.
“Before you even think seriously about it, consider that if you have to borrow $ 100 or $ 500 now, that you probably have $ 121 or $ 605 in a few weeks, to accommodate your other commitments, to pay off the loan. If you are not absolutely sure, things could start to escalate quickly and Christmas will be a distant memory. “
Hartmann agreed that borrowers need to understand what they are committing to.
“You’re in trouble with these if you can’t pay it back,” Hartmann said. “They very often let you borrow more to dig a deeper hole for yourself and it’s hard to get out of it.”
People sometimes got into the habit of going back to solutions that had worked in the past, like payday loans, Hartmann said. “It’s incredibly expensive and difficult to move forward. You are hurting your financial situation,” he said. “The message is to find alternatives at all costs.”
He said those concerned about Christmas shopping could choose new payment options such as AfterPay, PartPay and LayBy, which allow buyers to pick up the goods immediately but refund them over a period of several weeks, with no interest or no interest. associated costs.
Barnett said family and friends were another option.
“They might save $ 100 or $ 200 and not charge you interest, but make sure you have a repayment plan in place and stick to it. Banks are unlikely to lend that kind of amount. which you might need for Christmas, or at least they will try to dissuade you, ”he said.
“A typical personal loan has a set-up fee of $ 250, which isn’t worth it if you’re borrowing a few hundred dollars, plus the interest is maybe 17-18%.
“A bank overdraft would work much better. For example, at Westpac the interest rate is 13.95% per annum if you meet the agreed limit, along with a line of credit charge of $ 5 per month and a one-time fee of $ 25 to be set. ease of discovery in place. “
Barnett said it was worth asking people if they really needed the money.
“If it’s the cost of Christmas that chills your spine, you could cut back on gifts, ask others for Christmas dinner contributions, and plan inexpensive outings during the break. It is the homemade pleasures that will create the best memories. “
How much does it cost to borrow?
Mortgage repayment: 4.99% is the two-year median market rate.
Personal loan: ASB offers unsecured loans from 13.95% to 19.95%. ANZ offers 18.95% for unsecured loans. Second-tier non-bank lenders charge up to about 30 percent.
Auto loans: 13.6% *
Credit cards: 19.1% *
Store cards: 19.7% *
Peer-to-peer lenders: Rates vary depending on your credit score. Harmoney’s rates range from 6.99 percent to 29.99 percent.
Payday lenders: 468% *
*On average. Source: Tom Hartmann, CFFC.