Debt Consolidation Loans NZ, 13 FAQs Answered

Before you borrow to clear debt, two free options are worth a call. MoneyTalks, on 0800 345 123 or free text 4029, connects you with a free, confidential financial mentor who can help you manage your debt. Some creditors may agree a revised repayment plan, particularly if you ask before you fall behind. If neither option works for you, a consolidation loan may be worth considering.

Consolidation loans are one of the most common products we deal with at Alternate Finance, and one of the most misunderstood. People come to us thinking consolidation will reduce what they owe (it won’t), or that it will wreck their credit score (over time, what matters far more is whether you make the payments), or that it’s only for people already in serious trouble (the earlier you act, the more options you have).

We’ve been lending from Christchurch since 1983. Here are the 13 questions we get asked most, answered straight.

1. What is a debt consolidation loan?

A debt consolidation loan is a single loan that pays off several existing debts, so you go from managing multiple debts to one simple repayment.

It does not reduce what you owe. That surprises people. You still owe the same principal on day one. What changes is the structure. Instead of four creditors, four due dates and four interest rates, you have one loan, one regular repayment and one fixed rate for the term. It simplifies the admin, not the amount. Where the saving comes from is the difference between the rates you’re paying now and the rate on the new loan, plus the late fees and default charges you stop triggering once the old accounts are cleared.

Think of it as reorganising the debt, not erasing it. It suits people who can service the repayment comfortably and then leave the cleared accounts alone.

The pros and cons in short. On the upside, one payment date is far easier to manage than five, a fixed rate for the life of the loan makes budgeting possible, and clearing the old accounts stops the late fees. On the downside, you pay an establishment fee to set the new loan up, a longer term can cost you more in total even at a lower interest rate, and if the cards go straight back into use, fresh card debt just stacks on top of the loan. A debt consolidation loan is usually a personal loan used for this purpose, so the same credit criteria apply.

2. What debts can I consolidate?

Everyday consumer debts like the ones below can usually go into a debt consolidation loan. If you are juggling loans or credit accounts with several different lenders, they can usually be combined.

Commonly consolidated:

• Credit cards and store cards
• Personal loans from banks or other finance companies
• Overdrafts
• Hire purchase agreements
• Buy now pay later balances
• Outstanding utility and phone accounts

Usually not consolidated:

• Mortgages. A home loan is secured against your property at a far lower rate, so rolling it into a personal loan at a higher rate would cost you more, not less.
• Student loans. These are administered by Inland Revenue on their own terms. Talk to IRD rather than refinancing one.
• Fines, reparations and court ordered payments.
• Child support arrears.
• Car loans, in most cases, because they are secured over the vehicle.
• IRD debt. Talk to Inland Revenue directly about an instalment arrangement instead.

If you’re not sure where a particular debt sits, list it anyway when you apply. We’d rather tell you it doesn’t qualify than have you leave it out and end up with a loan that doesn’t clear the problem.

3. How does the process actually work?

You apply, we assess affordability, and if approved we can pay your creditors directly on your behalf.

The steps in order:

1. Get your numbers together. Every debt, the current balance, the rate, and who it’s with. Call each lender for a settlement figure, because the balance on your last statement is rarely the figure needed to close the account. Ask each one whether an early repayment fee applies.
2. Apply. The online form takes under eight minutes. You’ll need proof of income, recent bank statements and your list of debts.
3. We assess it. A person in our Christchurch office reads your application, not an algorithm. We’re looking at whether the repayment is genuinely affordable alongside your living costs, which is what responsible lending law requires of us.
4. You get a written offer. It sets out the rate, the term, the repayment, every fee and the total you’ll repay. Read it before you sign. If something isn’t clear, ask.
5. We pay your creditors. Once the contract is signed we can pay the lenders on your list directly, so the old balances are paid out rather than the money sitting in yours. That is usually the better way to do it, because it removes the temptation to spend the funds.
6. You make one payment. Weekly, fortnightly or monthly, whichever matches your pay cycle.

On timing, every application goes through responsible lending checks first, and how long those take depends on how quickly we can confirm your income, your existing debts and the payout figures from your creditors. We cannot promise a decision time. Once your loan is approved, funds are typically in your account within 24 hours. With a consolidation loan we usually pay your existing creditors directly rather than paying the money to you, so the timing that matters to you is when those accounts are settled.

4. Will consolidating hurt my credit score?

In the short term, applying creates a credit enquiry on your file, which can cause a small temporary dip. Over the longer term, what matters far more is whether you make the payments.

Here’s the mechanical picture. New Zealand has three main credit reporting companies, Centrix, Equifax and Experian. They record enquiries, open accounts, and your repayment history month by month. When you consolidate, three things happen. You add one enquiry and one new account. You close several old accounts. Then you either build a clean run of on time payments, or you don’t.

A consistent payment record on a single loan generally reads better to a future lender than a patchy record across five accounts. But consolidation is not a credit repair product, and nobody can promise you a particular score. If you consolidate and then run the credit cards back up, your position gets worse, not better.

You can get a free copy of your own credit report at centrix.co.nz. Worth doing before you apply, so there are no surprises. If your file is in poor shape, it is worth knowing what actually moves it before you apply.

5. Can I consolidate if my credit history is messy?

Possibly. A bank decline doesn’t mean an automatic decline here, because we look at your whole situation rather than a single number.

Your application involves a credit check as part of the assessment. What we’re actually weighing is whether you can afford the repayment, what security you can offer, how stable your income is, and what the credit file shows about the last twelve months in particular. A default from three years ago that’s been paid and followed by a clean run reads very differently from three missed payments last month.

If you’re self-employed, expect to be asked for more evidence of income, such as financial statements or business bank statements, so we can see what the income does across a year rather than in one good month.

We can’t promise a loan regardless of your credit history, and you should be wary of anyone who does. What we can tell you is that a person reads every application. If the answer is no, you’ll hear it by email, not silence.

Where a poor file genuinely blocks an application, the usual fixes are a guarantor or security. See question 9.

6. How much could consolidating actually save me?

The saving comes from two places, the gap between your current rates and your new one, and the late fees and default interest you stop paying.

If you’re carrying card balances at a high revolving rate and you consolidate into a loan at a materially lower fixed rate, the interest difference over a two or three year term is real money. Add the late payment fees, the dishonour fees and the default interest that multiple due dates tend to generate, and that second bucket can be the bigger one.

It’s not automatic, though. Two things can wipe out the gain. Stretching the term further than you need to means more interest overall even at a lower rate, so take the shortest term you can comfortably service. And the establishment fee on the new loan is a real cost that has to be weighed against the saving, as are any early repayment fees your current lenders charge.

The honest way to work it out is to compare totals rather than repayments. Add up what you will pay in full across every existing debt if you carry on as you are, then compare it with the total cost of the new personal loan, interest and every fee included. A lower weekly repayment on its own proves nothing, because it can simply mean you are borrowing over longer.

Our full schedule of interest rates and fees is published at Rates and Fees, and using our loan calculator will give you an approximate loan repayment before you apply. Fees may apply that are specific to your loan amount, so check the schedule. For a figure specific to your situation, apply and we’ll put it in writing before you commit to anything.

7. What is the smallest amount worth consolidating?

Our loans start at $800, but a debt consolidation loan earns its keep when you have two or more debts at different rates and different due dates.

If you’ve got one card with a small balance on it, you don’t need a debt consolidation loan. You need a plan to pay that card down, and paying an establishment fee to move it works against you. Our free budget planner is the place to start.

Where consolidation starts to make sense is the point where juggling is the problem, not just the interest. Three or four accounts, different due dates across the month, and a fortnight where one of them always slips. That’s the pattern where a single payment changes the outcome.

8. What repayment terms can I get?

Loan terms at Alternate Finance normally run to a maximum of three years, and you can set your regular repayment weekly, fortnightly or monthly.

Shorter is usually better. A longer term lowers the repayment, which is tempting when money is tight, but you pay interest for longer and the total cost goes up. The sensible approach is to work out what you can genuinely afford each week, including a buffer for the month something goes wrong, and take the shortest term that fits inside it.

Paying the loan off in full before the final payment is due does carry a charge. Under the Credit Contracts and Consumer Finance Act you always have the right to repay early and no lender can prevent it, but a lender may charge for it. At Alternate Finance a $65 administration costs charge applies, and a prepayment charge may also apply, calculated using the formula prescribed in the regulations. Both are set out on our Rates and Fees page and are disclosed to you before you sign.

9. Do I need to put up security?

Not always, but security usually improves your rate and it can be the difference between an approval and a decline. Where an application is marginal, security is often what makes it work.

Security means an asset we can register an interest against, most often a vehicle, and sometimes property. If you can offer it, we can price the loan more keenly, because our risk is lower. If you can’t, we look harder at income stability and credit history instead.

A guarantor is the other route. That’s someone who agrees to cover the loan if you don’t. It’s a serious commitment and a guarantor needs to understand exactly what they’re signing, so we’d encourage anyone considering it to take independent advice first.

Registering security carries a fee, which varies with the kind of security and is set out in full on our Rates and Fees page.

10. Can I consolidate if I’m on a benefit?

Yes, you can apply. A benefit is income, and because it is a fixed payment from Work and Income we can verify it precisely. We assess what you can afford to repay from the income you actually have.

Before you apply, talk to a financial mentor. MoneyTalks is free and confidential, on 0800 345 123 or free text 4029. It is operated by FinCap and funded by the Ministry of Social Development, and financial mentors are available throughout New Zealand. If your debts are to Work and Income, to IRD or to a power company, a mentor can help you look at options for those debts that may not need any new borrowing.

Work and Income may also be able to help with an essential cost, for example through an advance on your benefit. Ask them what applies to you before you borrow.

If consolidation is still the right answer after that conversation, the amount and term we can offer depend on your own assessment. The details of the product are on our loans for beneficiaries page.

11. What happens if I miss a payment?

Contact us before a payment is missed rather than after.

If a payment is missed, default interest applies to the overdue amount while it stays unpaid, and default fees may be charged for arrears letters and dishonoured payments. Our default fees and default interest rate are published on the Rates and Fees page, and every fee that can apply to your loan is disclosed in your contract before you sign.

You also have a statutory right worth knowing about. Under the Credit Contracts and Consumer Finance Act, if illness, injury, loss of employment, the end of a relationship or a similar reason means you can’t reasonably keep up your payments, you can apply to us in writing for a hardship variation, provided you reasonably expect to meet the payments once the contract is changed and the difficulty was not reasonably foreseeable when you signed. The Act sets out the forms that can take, being an extension of the term with each payment lowered accordingly, a postponement of payments for a set period, or both.

It is a route back to affordable, not a route out. You also cannot apply once you are two months or more in default, have missed four or more payments in a row, or two weeks have passed since a repossession warning notice, unless you first bring the loan up to date. So apply as early as you can.

If you’re struggling across several creditors, not just with us, call MoneyTalks on 0800 345 123. It’s free.

12. What should I try before consolidating?

Try the free options first. If one of them works, you’ve saved yourself an establishment fee and an interest bill.

Worth doing before you apply:

• Ask your existing creditors for a variation. Some creditors will agree to a short repayment holiday or a revised plan, particularly if you approach them before you fall behind rather than after.
• Talk to MoneyTalks on 0800 345 123. Free, confidential financial mentoring, operated by FinCap and funded by the Ministry of Social Development. A mentor can help you work through your debts, and it costs nothing.
• Build an actual budget. Not an estimate. Pull three months of bank statements and add it up. Our budget planner is free to use and needs no application.
• Cancel the credit you’re not using. Closing accounts, or at least reducing the limits, removes the temptation to refill them after you consolidate. This is the step people skip, and it’s the one that decides whether consolidation works.
• Check what you’re entitled to. Work and Income may be able to help with an essential cost you were about to put on a card.

Consolidation is the right answer when the debt is real, affordable to service at a better rate, and the juggling is what’s beating you. It’s the wrong answer when the underlying problem is that outgoings exceed income, because a new loan won’t fix that and may delay dealing with it.

13. How do I apply online?

Apply online in under eight minutes, or call us on 0800 695 626 and talk to someone in Christchurch. We have been lending from the same city since 1983.

To borrow from us you need to be at least 18, a New Zealand citizen or permanent resident, and have a regular income we can verify. That’s the baseline. Meeting it doesn’t mean approval, because affordability and our lending criteria still apply, but not meeting it means we can’t help.

What to have ready:

• Photo ID
• Proof of income, usually recent payslips or a benefit statement
• Recent bank statements
• Your list of debts, with balances and lenders
• Details of any security you’re offering

A person reads your application and you’ll get an answer by email either way, including if it’s a no. If you’re approved, you’ll get a written offer for your personal loan setting out the rate, the term, the repayment, every fee and the total cost before you commit to anything. Read it properly. Ask about anything that isn’t clear. Then decide.

Ready to start? Apply for a consolidation loan or read our guide to consolidating credit card debt if cards are the bulk of what you owe.

Still have questions about debt consolidation loans?

Ask us. There is no charge for a conversation and no obligation to apply.

Call 0800 695 626 and you will get someone in our Christchurch office who can talk through whether a debt consolidation loan is the right move for your situation, or whether one of the free options in question 12 would serve you better. Nothing on this page is financial advice, because we do not know your circumstances. It is general information from a lender that has been doing this since 1983.

If your credit file is the thing holding you back, our page on improving your credit score covers what actually moves it.

If you receive a benefit, the details of our beneficiary loans product are on their own page.

If you already know what you need, apply for a consolidation loan online.