Desperate families are turning to high-cost online loans with interest rates as high as 700%. Reporter Bridget Kelly finds the pain is even being felt locally.
JL Holyoake has a bone to pick.
As the service manager for Pakuranga and Howick Budgeting Services, she has been watching the new trend of high interest online loans financially ruining some of the community’s most vulnerable people.
People are going online to get small loans to cover things like groceries between pay cheques, and not realising how quickly it all adds up.
“The fact is a few hundred dollars turns into several hundred, and they’re struggling to pay it back,” said Holyoake.
“I don’t want to make out the people coming here are in the wrong, because they’re not, it’s just pressures of the way life is now. People get into debt.”
The Commerce Commission is currently investigating six online high-cost short term lenders, and is urging people to consider whether the terms are reasonable before applying.
“These investigations are at various stages and they focus on compliance with the lender responsibility principles,” the Commerce Commission said.
It’s not just single mothers, or people on the benefit getting caught out either. Holyoake has had couples with two incomes caught out by these schemes.
There’s an array of online finance companies now, where people can hit the internet and borrow money, and although there is a responsible lending code in place, it doesn’t seem to be helping.
“It feels as if there’s not as much checking done, because people are getting loans and they can’t afford them, they can’t repay them and it’s really high interest rates, up to 700 per cent sometimes,” said Holyoake.
Just Cash says on their website that you can get a loan of up to $1000 in less than four minutes. There is no interest on your first loan, and you’ll have 45 days to pay back $1573. Once you have applied for your first loan, you can apply for a second via text.
On Moola, you can apply for a loan even if you have bad credit history, with a 547.5 per cent annual interest rate on a short term loan.
Pronto finance NZ allows you to apply for up $20,000, and you can even log in using Facebook to speed up the process. www.prontofinance.co.nz/cost-of-borrowing
Applying for these loans seems like the easy solution for struggling families, said Holyoake.
“If people are desperate to feed families, or pay other bills and they’ve got creditors hounding them on the phone wanting to pay, then they’ll do anything.”
People assume that in an area like Howick or Pakuranga, people aren’t struggling. The deprivation index puts Howick as a three, compared to Glen Innes which is the most deprived, at 10 on the scale.
But the increasing rents in this area are driving families to desperation.
“It’s not to buy TVs and things like that; it’s to put food on the table,” said Holyoake.
“At the beginning of the year we had one family not sending their child to school because they couldn’t afford the uniforms.”
Holyoake see’s people who are stuck in a vicious cycle of debt, and sometimes she doesn’t see a way out of it for them either.
She can recall sitting at her chair going over someone’s budget and realising there was no spare expenses available to pay back anything.
When a person can’t afford their weekly loan payment, they get a dishonour fee, they then get a dishonour fee from the bank as well, add in high interest rates to the mix and it’s a recipe for ongoing debt.
“We see people come in with large personal loans, $15,000-20,000 and you’re not sure how on earth they ever got this much money loaned to them.”
Edward Recordon, Moola CEO, told the Times they were a responsible, transparent company, and that it was other non-compliant lenders that “tarnish” the rest of the industry.
They then admitted some circumstances are unforeseeable.
“Whilst we go above and beyond to ensure a customer can afford to make repayments without creating hardship, some customers’ situations do change and, unfortunately, we can’t always foresee these events,” said Recordon.
Technology is also increasing hardships. Children require tablets for school, and items such as cell phones and internet are no longer a luxury.
Kay Read, the National Commissioner Service Delivery for WINZ , encourages those who are struggling for everyday basics to contact Work and Income first, before considering the loans with high rates.
“We have a range of assistance available and can help with a range of household expenses including food, medical, and dental needs, white ware products, glasses, and clothing,” said Read.
Holyoake does believe that Work and Income can help people with loans, but in some cases the money is taken from them later, making budgeting even harder.
“That (small loan) then gets deducted out of their benefit which means they have less money the next week,” said Holyoake.
Pakuranga and Howick Budgeting services have recently started an initiative called Moneymate in an attempt to educate the community.
It’s an eight week programme which educates people about what borrowing money involves, and how to budget and prepare for unforeseen expenses.
It starts on July 27, from 10am-12 at the Pakuranga Library building.
If you are struggling for funds, organisations like NILS, Step Up, and Nga Tangata Microfinance offer loans that are low interest, or interest free.
