Hippo-sized loans is­sue

Marlborough Midweek - - FRONT PAGE -

rob.stock@fair­fax­me­dia.co.nz

It turns out you don’t need masses of fi­nan­cial lit­er­acy, or capability, to im­prove fi­nan­cial well­be­ing, ANZ’s re­cent Fi­nan­cial Fu­tures re­port found.

Adopt­ing just two habits is the key to a greater fi­nan­cial well­be­ing.

Habit one: save reg­u­larly. Habit two: don’t bor­row for ev­ery­day ex­penses.

I thought of th­ese things when I was sent a lit­tle metal hippo the other day by In­stant Fi­nance, a per­sonal loan com­pany that charges rather a lot of in­ter­est.

The hippo is the an­i­mal fronting In­stant Fi­nance’s new mar­ket­ing cam­paign in which the peo­ple of In­stant Fi­nance are dubbed the ‘‘Mak­ers of pos­si­ble’’.

With per­sonal loans from In­stant Fi­nance, the hippo can go on hol­i­day, re­pair his car, buy presents for loved ones, and go ice-skat­ing.

Cute, but all of those uses of a per­sonal loan are bor­row­ing for daily ex­penses.

That’s a fail on habit two, and while pay­ing in­ter­est of 19.95 per cent to 29.95 per cent (es­tab­lish­ment fee of $450), it is hard to see Recog­nise the per­ils of per­sonal debt Do not be­come a per­sonal debt pro­moter Al­ways know the price of debt

habit one tak­ing hold in a per­son’s life.

In­stant Fi­nance (which gets fund­ing from West­pac, its last an­nual re­port notes) had a loan book of just over $104 million at the end of March last year.

At that time, $63m of it was not in ar­rears. That means the bor­rower was up to date with pay­ments.

The rest was in ar­rears, most of it was ‘‘past due, but not im­paired’’. That means the bor­row­ers were behind in their pay­ments, but by only a few days or weeks.

Miss­ing pay­ments on loans in­di­cates lives that are low in fi­nan­cial well­be­ing.

Credit used well can make good things bet­ter. Credit used badly makes bad things worse.

Many In­stant Fi­nance bor­row­ers end up go­ing to bud­get ad­vis­ers in a bid to haul them­selves out of the deep, dark hole they got them­selves into.

On the spec­trum of lenders in New Zealand, In­stant Fi­nance is far from the worst, and in some ways lenders like it ex­ist be­cause of low wages and the high cost of liv­ing.

Like a bank, In­stant Fi­nance is equally well char­ac­terised as ‘‘Mak­ers of prof­its’’ as ‘‘Mak­ers of pos­si­ble’’, and ev­ery­one should adopt a wary stance when con­sid­er­ing tak­ing on a loan whether from a bank, or a fi­nance com­pany.

Not only for them­selves, but for their loved ones.

My long-stand­ing be­lief is that loved ones should never be asked to give a per­sonal guar­an­tee on a loan.

Sim­i­larly, peo­ple should not seek to profit from help­ing their fam­ily mem­bers, friends and ac­quain­tances go into per­sonal debt.

In­stant Fi­nance is of­fer­ing $150 ‘‘re­tail cards’’ to peo­ple who make a re­fer­ral of a friend who goes on to take out a $1000 or larger loan with the lender.

The per­son tak­ing out the loan gets one too.

That there is $300 ef­fec­tive com­mis­sion on a $1000 loan in­di­cates just how ex­pen­sive th­ese loans are, though many first-time bor­row­ers at any lender go on be­ing prof­itable cus­tomers long into the fu­ture.

Ru­in­ing your own fi­nan­cial well­be­ing is one thing.

Help­ing a friend do it is quite an­other.

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