The main difference between NZ banks and non-bank lenders (finance companies) lies in their risk appetite and approval criteria. While major banks (like ANZ, ASB, BNZ) offer lower interest rates but adhere to strict CCCFA regulations requiring perfect credit history, finance companies (second-tier lenders) provide more flexible approval options for borrowers with bad credit or irregular income, typically in exchange for higher interest rates.
If you have recently heard the dreaded phrase “application declined” from your bank, you are not alone. Since the tightening of the Credit Contracts and Consumer Finance Act (CCCFA), New Zealand banks have become incredibly risk-averse, scrutinizing everything from your morning coffee purchases to your Netflix subscriptions.
This shift has driven thousands of Kiwis toward non-bank lenders. But are these “finance companies” safe? Do they charge predatory rates? Or are they a legitimate lifeline when the main banks say no?
In this guide, we break down the pros, cons, and hidden costs of the NZ lending landscape to help you make a smart borrowing decision without damaging your financial future.
Why Do NZ Banks Decline Loans So Often Now?
In the past, having a steady job was often enough to secure a personal loan from major banks like ANZ, Westpac, or BNZ. However, the landscape has shifted dramatically. Banks are now legally required to scrutinize your spending habits in minute detail.
If you have recently applied for a loan and were rejected because of your spending on takeaways, streaming services, or gym memberships, you are a victim of the recent CCCFA changes. These regulations force banks to treat every regular expense as a commitment, drastically reducing your calculated disposable income.
Finance Companies: The Flexible Alternative
When the bank says “no,” finance companies (often called second-tier lenders) usually say “yes.” But how do they differ?
- Risk Appetite: Finance companies are willing to lend to Kiwis with bad credit scores or defaults, provided they have some form of security (like a car).
- Interest Rates: While bank personal loans hover around 12-14% p.a., finance companies can charge anywhere from 18% to 49% p.a. depending on your risk profile.
- Flexibility: They are more understanding of unique income situations. For instance, some specialized lenders offer loans for beneficiaries receiving WINZ payments, a group that mainstream banks almost always exclude.
Peer-to-Peer (P2P) Lending: The Middle Ground
If you don’t want to pay the high interest rates of a finance company but can’t meet the strict criteria of a bank, Peer-to-Peer lending might be your sweet spot. Platforms like Harmoney or Squirrel connect borrowers directly with investors.
P2P lenders typically offer better rates than finance companies and have a faster, entirely digital approval process. However, acceptance isn’t guaranteed. To see if this option suits your profile, check out our detailed comparison in our peer-to-peer lending reviews guide.
Quick Comparison: Banks vs. Finance Companies vs. P2P
| Feature | NZ Banks (Tier 1) | Finance Companies (Tier 2/3) | P2P Lenders |
|---|---|---|---|
| Interest Rates | Low (12% – 15%) | High (18% – 49%) | Variable (9% – 30%) |
| Credit Check | Very Strict | Flexible / Bad Credit OK | Moderate |
| Approval Speed | Slow (Days/Weeks) | Fast (Same Day) | Fast (24-48 Hours) |
| Security Required | Usually Unsecured | Often Secured (Car/Assets) | Mostly Unsecured |
Is Borrowing from a Finance Company Safe?
Yes, provided they are a registered Financial Service Provider (FSP). However, the safety risk isn’t about the company stealing your money; it’s about the debt trap.
Because finance companies charge higher interest rates, your weekly repayments will be higher. Before signing any contract, ensure you check the “Total Cost of Credit” figure, not just the weekly payment amount. If you default, secured loans mean you could lose your vehicle or other assets used as collateral.
Final Verdict: Should You Go with a Bank or a Finance Company?
The answer depends entirely on your financial health. If you have a clean credit history, stable income, and low existing debt, always try a bank first. The difference between paying 13% interest versus 25% can save you thousands of dollars over the life of a loan.
However, if the strict CCCFA regulations or a past credit default are holding you back, finance companies (Tier 2 lenders) are a legitimate option. They offer a lifeline when banks close the door. Just remember: higher risk means higher rates. Always compare the comparison rate (which includes fees) rather than just the advertised interest rate before signing any contract.
Ready to explore your options? Check out our specific guides on loans for beneficiaries or learn how to improve your approval odds under the new laws.
Frequently Asked Questions
Do finance companies check credit history in NZ?
Yes, almost all legitimate finance companies in New Zealand check your credit history. However, unlike banks, they are often willing to lend to people with “bad credit” or past defaults if the current affordability is strong or if the loan is secured by a vehicle.
Does applying for too many loans hurt my credit score?
Yes. Every time you submit a formal loan application, a “hard inquiry” is recorded on your credit file (Centrix, Equifax, or Illion). Multiple inquiries in a short time signal financial distress to lenders, lowering your score and approval chances.
What is a Tier 2 lender?
A “Tier 2 lender” refers to non-bank financial institutions like finance companies and credit unions. They sit between major banks (Tier 1) and payday lenders (Tier 3). They typically offer faster approval processes and more flexible criteria but charge higher interest rates than banks.
Are finance companies regulated like banks?
Yes. All lenders in New Zealand must comply with the Credit Contracts and Consumer Finance Act (CCCFA) and the Responsible Lending Code. They must be registered Financial Service Providers (FSP) and belong to a dispute resolution scheme.
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