7 Common Mistakes to Avoid When Applying for a Loan in New Zealand
Table of Contents
Applying for a loan can be a daunting process, especially if you’re new to it. In New Zealand, there are many options available for loans, ranging from personal loans to mortgages. However, there are also some common mistakes that borrowers make when applying for a loan. In this article, we’ll discuss five common mistakes to avoid when applying for a loan in New Zealand.
-
Not researching the lender
One of the most common mistakes that borrowers make when applying for a loan is not researching the lender. Different lenders have different criteria for approving loans, and some may be more lenient than others. Before applying for a loan, it’s important to research the lender and find out their lending criteria. This will give you an idea of whether or not you’re likely to be approved for the loan. You should also look at the lender’s reputation and read reviews from other borrowers.
Check that the lender is registered on the Financial Service Providers Register (FSPR) — this is a legal requirement for all lenders operating in New Zealand. Read their terms and conditions, and look at how they handle the application process. A lender that assesses applications with a real person, rather than a computer algorithm, will often give you a fairer outcome if your situation is not straightforward.
-
Not checking your credit score
Your credit score is an important factor that lenders consider when deciding whether or not to approve your loan application. Your credit score is a numerical representation of your creditworthiness, and it’s based on your credit history. If you have a low credit score, you may not be approved for a loan, or you may be charged a higher interest rate. Before applying for a loan, it’s important to check your credit score and take steps to improve it if necessary.
You can request a free copy of your credit report from Centrix, Equifax, or illion. Check it at least a month before you plan to apply, so you have time to dispute any errors, address anything unexpected or work on improving your score using these credit score improvement tips. If you find a default you had forgotten about, you can at least be prepared to explain the circumstances to the lender.
-
Applying for too much money
Another common mistake that borrowers make is applying for too much money. When you apply for a loan, the lender will look at your income and expenses to determine how much money you can afford to repay each month. If you apply for too much money, you may not be approved for the loan, or you may struggle to repay it. Before applying for a loan, it’s important to calculate how much money you need and make sure that you can afford the repayments.
Under the Credit Contracts and Consumer Finance Act (CCCFA), New Zealand lenders are legally required to assess affordability before approving any loan. This means your application will be measured against your actual income and expenses — not just your stated ability to repay. Applying for an amount that clearly stretches your budget does not just risk a decline; it can result in a smaller offer than you originally wanted, because the lender caps the amount at what they determine you can afford.
-
Not reading the terms and conditions
When you apply for a loan, the lender will provide you with a loan agreement that outlines the terms and conditions of the loan. It’s important to read this document carefully and make sure that you understand the terms and conditions. You should pay attention to the interest rate, the fees and charges, and the repayment schedule. If you don’t understand any part of the loan agreement, you should ask the lender for clarification.
Pay particular attention to whether there are early repayment penalties, what happens if you miss a payment, and whether the interest rate is fixed or variable. At Quick Loans, there are no early repayment penalties — but this is not the case with every lender. Knowing the difference before you sign can save you hundreds of dollars.
-
Applying for too many loans at once
Finally, some borrowers make the mistake of applying for too many loans at once. This can be detrimental to your credit score and make it harder for you to be approved for a loan in the future. Every time you apply for a loan, the lender will make an inquiry on your credit report. If you have too many inquiries, it can signal to lenders that you’re desperate for money or that you’re not a responsible borrower. Before applying for a loan, it’s important to make sure that you really need it and that you can afford the repayments.
As a general rule, more than two or three formal credit enquiries within a 90-day period will raise concerns for most lenders. Research your options online first, use calculators to compare repayment amounts, narrow your choices, and then submit one well-targeted application to the lender that best fits your situation.
-
Submitting messy bank statements
Your bank statements are one of the first things a lender reviews, and they tell a story about how you manage money. Frequent gambling transactions, consistent overdraft usage, multiple BNPL debts, or irregular income patterns can all raise concerns — even if you can technically afford the repayments.
In the weeks before applying, review your own bank statements as if you were the lender. Pay down any BNPL balances, avoid unnecessary discretionary spending, and make sure your regular bills are being paid on time. It will not change your financial history, but it shows a lender that you are managing your money deliberately.
-
Applying at the wrong time
If you have just started a new job, recently changed addresses, or are in the middle of resolving a financial dispute, your application may not present as strongly as it would in a few weeks or months. Lenders value stability — a few payslips from a new employer, a consistent address history, and a clean run of on-time bill payments all strengthen your position. If the loan is not urgent, waiting until these things are in place can make a meaningful difference to the outcome.
Conclusion
by Ash Horton
04/04/2023
Ash is a professional content writer with extensive experience in business development in the financial services. Ash has founded businesses from the age of 19, including franchising ventures, and working alongside some of the largest retailers in the world.