It was common to see clients who borrowed money they could not afford to pay back, especially on vehicles. Photo / Getty Images
It was common to see clients who borrowed money they could not afford to pay back, especially on vehicles. Photo / Getty Images
Rotorua budget advice clients have borrowed millions more in the past eight months than the entire previous financial year as the cost of living hammers household budgets.
But advisers say borrowers can take steps to get on top of debt - including factors to consider before taking on debt.
Advisers say it’s essential people understand what they are signing up for and make a repayment plan. Those repayments must be a priority even if things go wrong.
They recommend only taking on one loan at a time, and making repayments on time. They suggest spending plans include repaying debt as quickly as possible, prioritising high-interest debt and consideration of rolling high-interest debt into a lower-interest loan to save on interest.
Rotorua Budget Advisory Services manager Pakanui Tuhura said in the past eight months there was $13.5 million of client debt in total - nearly $2m more than the entire previous financial year to June.
Tuhura said much of the debt they worked with was “old debt” that had built up over years, and the rising cost of living forced people to recognise their increasingly unaffordable debt and “finally” deal with it.
Many were struggling to manage loan repayments and the cost of living. The “growing level of difficulty” for middle-income households to service loans was new, he said.
“Many times the client [has] accepted a loan, or loans when they knew they wouldn’t be able to make repayments but they needed the money and signed without reading, understanding or getting third party advice.”
Rotorua Budget Advisory Services manager Pakanui Tuhura. Photo / Andrew Warner
He said buy now pay later schemes had widened the range of reasons people got loans.
He said lending organisations that did not do thorough credit checks allowed people to get “over their heads in debt”.
His team advocated for better terms, challenged penalty fees and additional costs on loans, and advised people on how to lay a complaint or challenge a loan.
According to the Retirement Commission, 11.9 per cent of Kiwis are now in arrears on loans.
NZME’s broadened coverage of the cost of living crisis looks at how skyrocketing costs are affecting all of us, and seeks advice from experts and locals on how to manage finances through these tough times.
In the year to December, the cost of living increased by 8.2 per cent while the net average wage rose 6.24 per cent.
Rents and mortgage interest rates were also rising.
Retirement Commission personal finance lead Tom Hartmann said, anecdotally, people were retiring with more debt than they could handle.
He said a key concern was difficulty servicing loans after income dropped significantly upon retirement.
“Even if they are able to access their retirement savings, such as KiwiSaver, we are concerned that too much of that is hoovered up by past borrowing.”
Te Ara Ahunga Ora Retirement Commission personal finance lead Tom Hartmann.
He said people were falling behind on car loans, and there was an increase in late mortgage repayments, unsecured personal loans, credit cards and buy now pay later (BNPL) accounts.
While there had been steps in regulating BNPL, there was still a concern as people could borrow on multiple platforms, taking on “much more” debt than they could handle.
Commerce Commission credit general manager Louise Unger said the Commission received 29 complaints New Zealand-wide since July about lenders failing to make reasonable inquiries to assess that loans are suitable and affordable.
She said BNPL services were not covered by the Credit Contracts and Consumer Finance Act (CCCFA) and the commission was not assessing or investigating any BNPL services under that act or the Fair Trading Act.
In December, the Ministry of Business Innovation and Employment began consultation on draft regulations bringing BNPL loans under the CCCF Act as consumer credit contracts.
Once these regulations come into effect, the commission would be able to investigate BNPL lenders for potential breaches of disclosure, fees, responsible lending or other CCCFA obligations. A start date has not been announced.
“We understand that cost of living pressures are rising, which can drive increased demand for loans, whether through banks or alternative lenders,” Unger said.
She said it was important consumers knew their rights when it came to loans.
Lenders were obligated to help borrowers understand the loan contract including all associated fees, she said.
She said financial mentoring services provided free help with money management and debt-related problems and could work with lenders on behalf of borrowers.
If a borrower believed their lender had breached the CCCFA, they should first raise their concerns with the lender. They also had access to a dispute resolution service.
