New Lending Rules Create Desperate Conditions For Borrowers This Christmas

A higher number of family, friends and employers are likely to be 'hit up' for loans this Christmas as more Kiwis suddenly find their access to finance blocked by the new credit rules.

Pressure will be put on employers for advances on pay, and on family members to get loans out in their name instead.

Financial Coach and Consultant Shula Newland says this is of real concern as the employers, friend or family member may not be aware of the risk they are exposing themselves to, or the harm it may cause to the borrower in order to pay back the loan.

Newland has set up a social enterprise called Affordit NZ which is a platform designed to educate consumers about the legislation and of their options when they don’t meet affordability criteria.

The number of declined loan applications would be on the increase due to Credit Contracts and Consumer Finance Act (CCCFA) changes that came into effect on 1 December.

"We're heading into Christmas, and we all want 'that feel good buzz' that comes from watching the children open all the presents and enjoying their new gifts.

“However, those that have struggled to put any savings aside, will get a surprise when their loan gets turned down now due to the new regulations, and that will sadly leave them in a hopeless situation this Christmas, and looking for other options."

"If somebody close to you comes for a loan or asks you to apply for credit on their behalf – which is not uncommon – think twice. If they got declined due to affordability there is a real chance they may struggle to pay you back the money as well. I’m not saying that your answer to a loan request should be ‘no’, but you may want to refer to the website www.affordit.nz to see where they can go to get help to work out what their True Affordability is.”

Announcing Affordit NZ platform ­– www.affordit.nz – a social enterprise resource designed to help people with poor money habits achieve 'True Affordability' for the life and lifestyle they want, Newland urged consumers to use their 'declined' status as an opportunity.

“Take stock of your finances, and take back control.”

Newland said she still believed some unscrupulous lenders would take advantage of the situation and use a ‘False Affordability’ to grant loans. She also warns against going to lots of different lenders until you find one that will lend.

“I am hopeful that those who find they can’t get credit will use the tools and resources at Affordit NZ to reduce spending, increase their knowledge and take back control of their finances.

“For example, www.affordit.nz provides free and independent sources for financial mentoring and coaching. You can use it to get help to change your habits with money and to get ahead and work out what you can afford, or to assess your own affordability. There is a test to find out what your Money Personality is as well.

“People with a ‘Spender’ personality tend to live in the moment. They avoid thinking about the issues, and some are completely oblivious to their dire financial circumstances. The prescriptive nature of the rule changes will hopefully lead to an increase in declined applications to those that can’t afford it, and recognition by some that they need help."

Newland said borrowing isn't a bad thing when it is necessary to get ahead. For example, for a new washing machine, a car to get to work or car repairs, or to invest in your future. There are other options if your costs are essential and you don’t meet affordability for a loan. Affordit NZ aims to make people aware of their options.

"Unfortunately, many don't make the connection between good money goals and those that feed their ego – like expensive clothes and jewellery and cars. And often it is the children that end up missing out.

"Changes to the CCCFA have been heavily criticised. However, I am excited that these legislative changes will bring a reality check to many and can actually help lift New Zealand up. Affordit NZ can help them get back to affordability."

Newland offers the following advice to people who want to get to 'affordability':

1. Assess your spending

People who suddenly find themselves declined for credit shouldn't blame the legislation but instead, look to start making sense of their spending.

"If you have been declined, stop the spending and start assessing your money habits honestly. Find out your ‘Money Personality’. You may have a spender personality, which will mean you will need a motiving goal to get behaviour changes, otherwise you will just keep spending. It really is a balance between spending and enjoying living in the now, versus having more security and your own home in the future.”

2. Consider alternative finance

Newland said that where there is an essential and real need for finance, such as motor vehicle repairs, and the person who has been declined can look to alternative avenues of finance like their KiwiSaver, Work and Income or not-for-profits who offer microloans.

3. Reduce costs

"It is often those small, hidden expenses that chip away at our budget. Netflix, takeaways, coffees, the nail salon – it all adds up. It might not be that you have to eliminate these things completely, but instead budget for moderate consumption.”

Newland said that Affordit NZ is in the process of developing technology that will accurately assess a person's spending habits to determine their ‘True Affordability'. This will be a much needed service with the new rules and the difficulty in assessing how people spend their money.

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