Nobody needs an unexpected bill. It could be the washing machine on the fritz, a phone that died after you dropped it the 101st time, or a 5pm flattie on the Harbour Bridge. We know that sometimes when it rains, it pours. So, when the weather turns on you, it’s best to be in the know. One available solution is a “Payday Loan”. In this blog, we’ll look at the rules and risks of payday loans so you can make the right decision for you. 

Instant Finance does not sell a product that offers the common features of payday loans. If you are wondering how Instant Finance can help, check out our product pages for personal loans, or give our friendly team a call on 0800 760 000. 


#1 What is a Payday Loan? 

A payday loan is usually a short term, unsecured loan. Matching the name, payday loans are designed to help consumers reach their next payday when bills get in the way.  

In New Zealand, payday loans are a type of personal lending captured under the Credit Contracts & Consumer Finance Act 2003 (the CCCFA) and its related regulations. This means that all lenders offering payday loan products are obligated to follow the “Responsible Lending Principles” of the CCCFA. 


#2 Common Payday Loan Features

Payday loans in New Zealand often have some or all of the following features. If you’re considering a payday loan, these are some useful things to think about: 

  • Short-term lending – Payday loans usually have a term of 1-2 weeks, where the borrower must repay the full loan or be in default.
  • Low Credit History restrictions – Payday loans are usually available to borrowers with limited or poor credit history. 
  • High-interest rates – Payday loans usually have high-interest rates compared with other types of personal loans. 
  • Significant fees – Payday loan contracts usually include numerous types of fees that may apply, especially where the borrower is unable to fulfil the original terms of the loan.


#3 Borrower Risks 

Remember when we said that when it rains, it pours? Well, that’s exactly what you don’t want to happen after taking a payday loan. 

Putting together the common features of payday loans, it’s easy to see that if something else goes wrong, a borrower could get into deep trouble. High interest designed for a 2-week loan builds up very quickly when adding a few extra weeks if you can’t quite pay the loan off in time. Penalty fees are also likely to be added, turning a molehill into a mountain in no time. 

But what other risks are there that aren’t as obvious? 

  • Not for regular/long-term use – The design of payday loans usually means that the costs of borrowing (i.e., the interest, fees and other unavoidable costs) are high. Long-term use of payday loans increases the chance that the risks turn into expensive problems. 
  • Downwards spiral – While a payday loan might solve the immediate problem, the short terms often mean big repayments. If you’re robbing Peter to pay Paul, your other bills might fall behind. That could mean much longer consequences for a borrower than just the few weeks of the payday loan. 
  • Credit Score impact – Use of payday loans can have a quick and severe impact on your credit file. Other lenders can see which organisations have done credit checks for you on your credit file. Activity with payday lenders might be seen as a risk, which may increase the interest rates available to you, or prevent you from gaining finance altogether. 
  • Existing hardship – If you’re struggling to meet your regular expenses, you might be in financial hardship. Payday loans are more likely to worsen or extend your financial hardship than solve it. 


#4 Does High-cost Lending = Payday Loans 

Over the last 4 years in New Zealand, new law has been introduced for “High-cost Lending”. The high-cost lending sections of the CCCFA and its regulations give extra rules that lenders must follow when providing high-cost loan products. In simple terms, high-cost lending means a loan where the annual interest rate is 50% or greater. If you are in doubt about whether a loan is a “high-cost loan”, we recommend you ask the lender or seek independent advice from a financial mentor. 


#5 So, what about Buy-now, Pay-later?  

This blog doesn’t look at Buy-now, Pay-later (BNPL) offerings. At the time of writing, BNPL products are not covered by the CCCFA because they do not charge interest on the borrowed amount. 


#6 Alternatives to Payday Loans 

So, after all that, you still have a flat tyre – and you need a solution. Here are some tips for consumers in tough spots that would rather avoid a payday loan: 

  • Seek assistance – New Zealand has an abundance of financial mentors who provide free, confidential assistance. Financial mentors can help you with community assistance programs to meet your basic needs and set up a budget for you to move forward with confidence. You can get help finding a local financial mentor at 
  • Consider other financial products – If you’re confident you can manage the repayments, but need to fix the problem now, there are other financial products available. Take a look at Instant Finance’s product pages here or call our friendly team on 0800 760 000 to see if we have the right option for you. 
  • Reconsider! – Only you can know whether it’s a storm. Sometimes, the rain is just a spring shower and waiting it out is the best option. The best tip we can offer you is to stay informed and don’t rush out without an umbrella! 


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