Hippo-sized loans snag
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 was 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 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, long into the future.
Ruining your own financial wellbeing is one thing.
Helping a friend do it is quite another.