Bar­gain hard and don’t pay too much

Auckland City Harbour News - - NEWS -

Ca­sual as­sump­tions can cost money. We’re all guilty of them. Many we get away with, some we pay through the nose for.

Plenty of peo­ple, for ex­am­ple, as­sumed back in 2006 that we lived in a coun­try and world gov­erned by pro­fes­sion­al­ism, com­mon sense and the rule of law.

Then our fi­nance com­pa­nies started fall­ing over and the Global Fi­nan­cial Cri­sis fol­lowed. Our col­lec­tive eyes were opened and the wealth of many was dra­mat­i­cally de­creased.

But don’t let’s lose per­spec­tive.

The bulk of the money trans­fer from our pock­ets into those of the money men gen­er­ally doesn’t come in the big col­lapses and mis-sell­ing scan­dals that seem to fre­quently erupt in the fi­nance in­dus­try.

No, most of it hap­pens be­cause we, the lit­tle peo­ple, pay too much in­ter­est on debt, whether it be to buy a house, a car, a stereo, or most de­press­ingly to pay for es­sen­tials like food and power.

And I reckon there are a bunch of as­sump­tions that lead too many of us to pay over the odds.

The first is around sourc­ing loans.

A week ago the top man at per­sonal loan fi­nance com­pany In­stant Fi­nance told me it had lost cus­tomers to big Aus­tralian-owned banks and that the banks were happy to lend more than his busi­ness would. I was gobsmacked.

I’d also thought there was a huge dif­fer­ence be­tween the type of cus­tomer In­stant would at­tract and those the banks would lend to.

Af­ter all, the aver­age weighted in­ter­est rate on In­stant Fi­nance loans at the end of March last year was 29.79 per cent.

Those bor­row­ers In­stant Fi­nance lost to the banks were go­ing to get their debt for a lot cheaper than that. They had not as­sumed the bank wouldn’t be in­ter­ested in their busi­ness and they’d got their deals.

An­other lazy debt as­sump­tion is around car fi­nance. One man I spoke to a cou­ple of weeks back had gone to a sec­ond tier lender in­stead of the bank at which he had his mort­gage be­cause he felt the bank would not ap­prove of him buy­ing a new car.

The as­sump­tion bank staff would be mak­ing moral judg­ments of him had cost him a lot of money be­cause there was a big dif­fer­ence in the lend­ing rate.

There are five other debt as­sump­tions no-one should ac­cept:

1. The min­i­mum re­pay­ment lev­els on credit cards are sen­si­ble.

2. Rises in your credit card lim­its of­fered by the bank are a re­ward to a good cus­tomer.

3. Pay­ing back a mort­gage over 35 years is OK.

4. In­ter­est rates posted in the bank win­dows are the rates ev­ery­body pays.

5. You de­serve a hol­i­day and pay­ing for it with a loan is OK. The truth: 1. The longer you pay, the more you pay. Pay off that $2000 at $40 a month (min­i­mum re­pay­ment 2 per cent), and you’ll be go­ing grey by the time the debt’s gone.

2. The only per­son who should be seek­ing to lift your limit, is you.

3. The longer you carry debt, the more you pay for the priv­i­lege.

4. The clever never pay the ad­ver­tised mort­gage rate. If the bank wants your busi­ness, make them show it.

5. You can’t help buy­ing a house on credit. It can be hard to buy a car with­out debt. It’s daft to hol­i­day on debt.

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