Despite this caution, personal loans endure and for some consumers personal loans do offer distinct benefits. These benefits include:

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1 Report No. 3 November 2013 IN THIS REPORT We research and rate 19 products from 9 providers to determine those which offer outstanding value for consumers. NEW ZEALANDERS ARE REDUCING PERSONAL DEBT Like many consumers and governments around the world, New Zealanders have had a love affair with debt for quite some time. The Reserve Bank of New Zealand (RBNZ) advises that in the twenty years to 2011, total housing and consumer loan debt increased around six-fold in dollar terms, or approximately two and a half times as a ratio of debt to household disposable income. Indeed, our collective debt levels are causing some concern for regulators in the face of a consistently strong $NZD and a persistently low rate of inflation. Our rising debt on the housing front was one of the factors contributing to the recent RBNZ decision limit the number of new mortgages with a Loan to Value Ratio (LVR) of over 80%. Nevertheless the level of consumer loans has been falling over recent quarters, with the current consumer loan amount of $94 million reported by the RBNZ being lower than at any point since September Post- GFC, Kiwis seem to be displaying a newfound caution in relation to discretionary spending. Despite this caution, personal loans endure and for some consumers personal loans do offer distinct benefits. These benefits include: The ability to borrow as little or as much (subject to your personal borrowing capacity) as required. A structured repayment timeframe, which could range from six months to ten years. A structured timeframe means that your debt will at some point be extinguished. Certainty of both regular repayment amount and rate of interest. Flexibility (in most instances) to extinguish your debt ahead of time. Average personal loan interest rates can offer a more cost-effective alternative to credit card interest rates, with a current average unsecured personal loan variable rate of 16%, compared to the current average credit card interest rate of 18.69%. Despite this narrow cost advantage, personal loans are still an expensive form of credit, with a margin of more than 13% between the official cash rate and the average unsecured personal loan variable rate. Date Unsecured loan Official cash rate Margin % rate 1 Nov % 2.50% 13.31% 1 Nov % 2.50% 13.30% 1 Nov % 2.50% 13.50% Source: CANSTAR personal loan star ratings, November 2013 YOUR GUIDE TO PRODUCT EXCELLENCE

2 It should also be noted that there has been a recent increase in the number of low rate credit cards offered in the New Zealand marketplace, with Bank of New Zealand s Low Rate Mastercard and American Express Low Rate card being the newest players on the block. The table below summarises the low rate cards that CANSTAR note are on offer: Company Product Interest Rate ANZ Bank Low Rate Mastercard 13.90% ASB Bank Low Interest MasterCard 13.60% BankDirect Visa Classic Low Int 13.60% Kiwibank Low Rate MasterCard 12.90% Warehouse Fin SVCS Low Interest MasterCard 12.99% Westpac Low Interest MasterCard 12.95% Bank of New Zealand Lite Visa Card 13.25% Bank of New Zealand Low Rate Mastercard 12.95% American Express Low Rate 12.69% Source: CANSTAR, November 2013 HOW PERSONAL LOANS STACK UP When it comes to personal debt, consumers have a number of borrowing options available. These include: Payday Loan: A pay day loan is a small, short-term unsecured loan. Payday loans are characterized by a high rate of interest charged (which can be a percentage rate of many hundreds per annum) and generally a low dollar value of loan. The usual loan size is less than $2000 and has a loan period of a fortnight or month. Overdraft facility: An overdraft facility is an arrangement between the lender and the customer based on the customer s credit rating and ability to pay back the money. Usually a personal overdraft may be approved for an amount of around $500. This facility allows the customer to overdraw their account at an interest rate which is similar to that charged on a typical personal loan. An overdraft facility can be secured or unsecured. Note though that an unarranged overdraft (whereby a customer unintentionally overdraws their account) may attract a penalty fee. Credit Card: A credit card is a revolving debt facility on which New Zealanders collectively owe approximately $5.6 billion at any point in time. It works on the principal that consumers can rotate their debt on a monthly basis and receive an interest-free period to pay back the debt in full to get the same initial benefit once again. It is an unsecured debt, with an average interest rate that reflects that arrangement, and has become a way of transactional life for many consumers. YOUR GUIDE TO PRODUCT EXCELLENCE 2

3 Personal Loan: A personal loan is a larger credit facility that can be taken for a longer term. Personal loan terms range up to a maximum of 10 years, although five years is the most common loan term. A personal loan can be a secured or unsecured loan. If unsecured, the maximum allowable borrowing limit that CANSTAR observes is $100,000. If secured there is no borrowing limit, with the maximum amount being assessed against the repayment capacity of the borrower. A personal loan can be used to purchase large ticket items or alternatively used as a great consolidation tool. Unlike credit cards there is no way of adding to a personal loan with more impulse purchases. With a personal loan consumers can be sure that at the end of their repayments, they will be able to get over their debt. Home loan line of credit: A line of credit secured against a home is an attractive option for larger projects such as home renovations or even purchasing a car. Be mindful though that it still needs to be treated as a personal loan. If you look to repay it over 30 years instead of 5 years the renovations or car may become very expensive When it comes to borrowing money for personal finance needs, being objective about both your borrowing needs and repayment capacity will put you in a better position to choose the best credit product for you. The table below page summarises the various pros and cons with each method of payment. Features Personal Loan Credit Card Home Loan redraw Loan amount Medium Small Medium to large Loan Duration Medium Indefinite Long Interest rate Medium High Low Pros Cons Disciplined repayment plan Not as flexible as Credit Cards, with a higher average interest rate than home loan redraw Flexibility to use it whenever you need it, subject to borrowing limit Higher average interest rate than personal loan or home redraw. Can be an expensive credit trap for undisciplined spenders Readily available source of pre-saved funds May turn your short term debt into long term if increased repayments are not factored in to your mortgage WHAT SHOULD CONSUMERS LOOK FOR? The interest rate charged on the loan will be the primary consideration for most consumers, but beyond this a number of other features are also potentially important. These include: Repayment flexibility. In addition to the regular repayments, it is useful if a personal loan also allows additional lump-sum or regular repayments. That way, if your finances allow, you have the ability to repay the loan ahead of time. Competitive fees and charges. The fees and charges that are applied can make a significant difference to the overall cost of a loan and you will need to balance the interest rate charged plus the other fees and charges to ensure that you choose a competitive product. Redraw facility. Can you redraw against your personal loan if required? What are the conditions and fees attached? YOUR GUIDE TO PRODUCT EXCELLENCE 3

4 SECURED OR UNSECURED: WHAT S THE DIFFERENCE? As part of this star ratings, CANSTAR research both secured and unsecured personal loans, as well as debt consolidation loans (which are a form of personal loan used specifically for debt consolidation purposes). So how do these loans differ? A secured loan is secured against a particular asset. That means that if a consumer fails to meet their repayment obligations, the lender has the right to take possession of the asset and sell the asset in order to recoup the borrowed funds. Because the loan is secured by an asset, this type of loan is seen by the lender as a lower business risk and as such a secured loan will tend to attract a lower interest rate. Currently on the CANSTAR database, the average variable interest rate on a secured loan is 13.23%. An unsecured loan, as the name suggests, is money that is lent without the lender taking security over an asset. This makes an unsecured loan a higher business risk for lenders and the interest rates charged will generally reflect this. Currently on the CANSTAR database, the average variable interest rate on an unsecured loan is 16% or for a debt consolidation loan, 15.89%. Within the secured and unsecured environment, a personal loan may be for a multitude of purposes. CANSTAR appreciates the clear distinction of personal loan users as two separate groups. One group of borrowers uses personal loans mainly to purchase cars while the other group uses personal loans to finance other interests such as debt consolidation or holidays. CANSTAR s personal loan star ratings methodology reflects the distinction between these groups and loans are assessed by category as follows: Debt Consolidation - $15,000 repaid over 3 years - to be eligible for this category, must be available for debt consolidation for the loan amount of $15,000 over 3 year loan term. The average interest rate on CANSTAR s database for a debt consolidation loan is currently 15.89%. Unsecured Personal Loan - $10,000 repaid over 3 years - to be eligible for this category, loans must be available for either debt consolidation or holidays (but exclude loans that are available exclusively for debt consolidation) and be available for the loan amount and loan term used in that unsecured personal loan scenario. The average interest rate on CANSTAR s database for an unsecured personal loan is currently 16.00%. Secured Personal Loan - $20,000 repaid over 4 years - to be eligible for this category, loans must be available for the purchase of a car and available for the loan amount of $20,000 over 4 years loan term. The average interest rate on CANSTAR s database for a secured personal loan is currently 13.23%. Irrespective of type, each personal loan reviewed for the CANSTAR personal loan star ratings is awarded points for its comparative pricing and for the array of positive features attached to the product. Pricing may include costs such as the interest cost, establishment fee, ongoing costs and any one-off fees. There are fifteen different categories of features and they include considerations such as lending terms, channel availability, documentation, turnaround times, redraw facility and repayment capabilities. Points across pricing and features are aggregated to achieve a Pricing score and a Feature score. Personal loans are then ranked and awarded stars based on value-for-money measures. YOUR GUIDE TO PRODUCT EXCELLENCE 4

5 DEBT CONSOLIDATION CALCULATION Credit card or personal loan? When it comes to debt consolidation, working out which loan structure to adopt comes down to your repayment habits and the borrowing period. The first two tables below examine the difference between repaying a loan of $10,000 over 3 years using an average 15.89% debt consolidation personal loan compared to an average 18.69% credit card with a balance transfer period of 6 months at an introductory rate of 0%. By looking at the total interest paid, the consumer would be better off taking out the credit card with its 6 months balance transfer offer of 0% instead of the personal loan if they commit to repaying their credit card in full over the three year period. However, as the second table clearly shows, if the consumer fails to repay the fixed monthly repayments of $335 on the credit card and elects instead to pay only the minimum, the interest cost over three years is $3,205 plus leaving an outstanding debt of $2,071. Personal Loan vs Credit Card: Total repaid in 3 years Personal Loan Interest Rate p.a. Monthly repayment At the end of 3 rd year Total Interest Paid Closing Balance 3 years 15.89% $ $2, Nil Credit Card 3 years 18.69% $ $2, Nil Personal Loan vs Credit Card: Minimum Repayment Personal Loan Interest rate p.a. Monthly Repayments At the end of 3 rd year Total Interest Paid Closing Balance Years repaid in 3 years 15.89% $ $2, Nil 3 yrs Credit Card Minimum Repayments 18.69% 5% or $10 $3, $2, yrs 11 mnths The next two tables replicate the conditions above, but assume that a consumer uses a low rate credit card with an interest rate of 13.20%. In this instance, the total interest paid is less under both scenarios via a credit card, however if minimum-only repayments are made, the customer is still left with a sizeable debt to pay off. Personal Loan vs Credit Card: Total repaid in 3 years Personal Loan Interest Rate p.a. Monthly repayment At the end of 3 rd year Total Interest Closing Paid Balance 3 years 15.89% $ $2, Nil Credit Card 3 years 13.20% $ $1, Nil Personal Loan vs Credit Card: Minimum Repayment Personal Loan Interest rate p.a. Monthly Repayments At the end of 3 rd year Total Interest Paid Closing Balance Years repaid in 3 years 15.89% $ $2, Nil 3 yrs Credit Card Minimum Repayments 13.20% 5% or $10 $2, $2, yrs 11 mnths YOUR GUIDE TO PRODUCT EXCELLENCE 5

6 STAR RATINGS A SHORTLIST When considering whether a personal loan is right for you, consumers should consider both cost considerations as well as their own spending habits and their ability to repay their debts on time. If a personal loan is the right way to go, then the CANSTAR personal loan star ratings will help you easily compare the best five star personal loan for your needs. In compiling this comparison we evaluated a total of 19 personal loan products from 9 institutions. To check the methodology we used in our star ratings, see the document at the end of the results report below. COPYRIGHT CANSTAR New Zealand Limited ( ), The recipient must not reproduce or transmit to third parties the whole or any part of this work, whether attributed to CANSTAR or not, unless with prior written permission from CANSTAR, which if provided, may be provided on conditions. DISCLAIMER To the extent that any CANSTAR data, ratings or commentary constitutes general advice, this advice has been prepared by CANSTAR New Zealand Limited ( ) FSP and does not take into account your individual investment objectives, financial circumstances or needs. Information provided does not constitute financial, taxation or other professional advice and should not be relied upon as such. CANSTAR recommends that, before you make any financial decision, you seek professional advice from a suitably qualified adviser. A Product Disclosure Statement relating to the product should also be obtained and considered before making any decision about whether to acquire the product. CANSTAR acknowledges that past performance is not a reliable indicator of future performance. YOUR GUIDE TO PRODUCT EXCELLENCE 6

7 Personal Loan Star Ratings Report Date: NOVEMBER 2013 We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. This is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you. Debt Consolidation Loan Company Name Product Rate (as at 1 November 2013) Apply online Loan Fees ($) Monthly Application Loan Amount ($) Minimum Maximum Loan Term Unsecured 100% Loan Available All ratings take into account costs and features - see our methodology document for further details Outstanding value Bank of New Zealand NZ Advanced Personal Loan variable Co-operative Bank Personal Loan Unsecured to mth to 5 yrs TSB Bank Personal Loan Unsecured yr to 5 yrs ANZ Bank NZ Fixed Personal Loan to No Max 6 mths to 7 yrs ASB Bank NZ Debt Consolidation No Max 1 yr to 5 yrs NZCU Baywide Unsecured Personal Loan to No Max 1 yr to 10 yrs Westpac NZ Personal Loan Unsecured to No Max variable ASB Bank NZ Personal Loan Unsecured No Max 1 yr to 5 yrs GE Money NZ Debt Consolidation Loan to mths to 7 yrs GE Money NZ Personal Loan Unsecured to mths to 7 yrs Kiwibank NZ Personal Loan mths to 7 yrs your guide to product excellence Report Date: November, 2013 (All information correct as at 1 November 2013) PERSONAL LOAN STAR RATINGS PAGE 1

8 Personal Loan Star Ratings We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. This is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you. Report Date: NOVEMBER 2013 Unsecured Personal Loans Company Name Loan Fees ($) Loan Amount ($) Product Rate Apply Loan Term Holiday Consolidate Debt (as on 1 November Online 2013) Monthly Application Minimum Maximum Home Renovation All ratings take into account costs and features - see our methodology document for further details Outstanding value Co-operative Bank Personal Loan Unsecured to mth to 5 yrs TSB Bank Personal Loan Unsecured yr to 5 yrs ANZ Bank NZ Fixed Personal Loan to No Max 6 mths to 7 yrs Bank of New Zealand NZ Advanced Personal Loan variable NZCU Baywide Unsecured Personal Loan to No Max 1 yr to 10 yrs Westpac NZ Personal Loan Unsecured to No Max variable ASB Bank NZ Personal Loan Unsecured No Max 1 yr to 5 yrs GE Money NZ Personal Loan Unsecured to mths to 7 yrs Kiwibank NZ Personal Loan mths to 7 yrs your guide to product excellence Report Date: November, 2013 (All information correct as at 1 November 2013) PERSONAL LOAN STAR RATINGS PAGE 1

9 Personal Loan Star Ratings We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. This is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you. Report Date: NOVEMBER 2013 Secured Personal Loans Company Name Product Rate (as on 1 November 2013) Apply Online Loan Fees ($) Monthly Application Loan Amount ($) Minimum Maximum Loan Term Holiday Consolidate Debt Home Renovation Outstanding value All ratings take into account costs and features - see our methodology document for further details Co-operative Bank Personal Loan Secured to No Max 1 mth to 5 yrs TSB Bank Personal Loan Secured yr to 5 yrs Co-operative Bank Vehicle Loan to No Max 1 mth to 5 yrs Westpac NZ Personal Loan Secured No Max variable ASB Bank NZ Personal Loan Secured No Max 1 yr to 5 yrs GE Money NZ Car Loan Secured to mths to 7 yrs Kiwibank NZ Vehicle Loan to No Max 6 mths to 7 yrs NZCU Baywide Secured Personal Loan to No Max 1 yr to 10 yrs your guide to product excellence Report Date: November, 2013 (All information correct as at 1 November 2013) PERSONAL LOAN STAR RATINGS PAGE 1

10 METHODOLOGY What are the CANSTAR Personal Loan Star Ratings? CANSTAR personal loan star ratings is a sophisticated rating methodology, unique to CANSTAR that compares the dominant personal and car loan products in New Zealand. The results are reflected in a consumer-friendly 5-star concept, with 5 stars signifying outstanding value offered by the product. What types of products are evaluated in CANSTAR Personal Loan Star Ratings? We have compared 19 personal loan products from 9 institutions. For our analysis, three profiles were used to reflect three main uses of personal loans: Profile Name Debt Consolidation Description Loans must be available for debt consolidation and be available for the loan amount and loan term used in the debt consolidation scenario ($15,000 over 3 years) Unsecured Personal Loan Loans must be available for the loan amount and loan term used in that personal loan scenario ($10,000 over 3 years) Secured Personal Loan Loans must be capable of being secured against at least a motor vehicle and be available for the loan amount and loan term used in that personal loan scenario ($20,000 over 4 years) CANSTAR Star Ratings Methodology Each personal loan reviewed for the CANSTAR personal loan star ratings is awarded points for its comparative pricing and for the array of positive features attached to the product. Points are aggregated to achieve a Pricing score and a Feature score. To arrive at the total score CANSTAR applies a weight against the Pricing and Feature scores. This method can be summarised as: TOTAL SCORE = PRICING SCORE + FEATURES SCORE YOUR GUIDE TO PRODUCT EXCELLENCE

11 Pricing Score 70% Total Cost Includes interest cost, establishment fee, ongoing costs and any one-off fees (Doc fee & Doc release fee) Feature Score 30% Features Includes over 15 different categories Price Score Feature Score Debt Consolidation 70% 30% Unsecured Personal Loan 70% 30% Secured Personal Loan 70% 30% Pricing Score The pricing score is based on a transaction scenario reflecting the total interest cost of a loan based on the loan amount and loan term typical of each profile (see table below). Total cost in each scenario is calculated based on the 6 month average interest cost, establishment fee, ongoing costs and any one-off fees (in the Secured Personal Loan profile). For loans that gave a range of interest rates, the midpoint between the minimum and the maximum rate was used for calculation of each of the scenarios. The total interest cost is then indexed against each personal loan in the profile and then weighted to determine the overall personal loan pricing score. Total Cost Scenarios Loan Amount Loan Term Debt Consolidation $15,000 3 years Unsecured Personal Loan $10,000 3 years Secured Personal Loan $20,000 4 years YOUR GUIDE TO PRODUCT EXCELLENCE

12 Feature Score Each loan feature is categorised into 15 different categories in TABLE 2 and is allocated points. Points are awarded for positive loan traits such as low fees or greater flexibility. The total feature score for each category (e.g. lending terms) is ranked and weighted with each category contributing to the overall features score. TABLE 2: Feature Category Weightings Feature Category Debt Consolidation Unsecured Personal Loan Secured Personal Loan Examples of data captured Lending Terms 24% 20% 17% Repayment Capabilities 23% 21% 17% Security Requirements - - 3% Channel Availability 7% 6% 6% Document Required 6% 6% 5% Fees & Charges 11% 10% 10% Min/Max conditions, income/repayment ratio, approval conditions, rate Min repayment requirement, avenues, repayment options Unsecured, partial, bill of sale, lien of Term deposit Application through: Branch, Internet, Broker, Phone Bank reference, pay slips, proof of residency, tax return Repayment penalties, missed payment penalty Turnaround times 7% 5% 6% Standard approval turnaround Redraw Facility 16% 15% 15% Availability, conditions, fees Loan Insurance 3% 3% 3% Deposit Requirements - - 5% Loan purpose insurance, loan insurance details 100% loan availability, min/max deposit requirements Statement options 3% 3% 3% Frequency options, online option Loan Purpose - 11% 10% Motorcycle, new/used cars, holidays, renovation YOUR GUIDE TO PRODUCT EXCELLENCE

13 How many products and financial institutions are analysed? In order to calculate the ratings, CANSTAR analysed 19 personal loans from 9 financial institutions in New Zealand. How often are all the products reviewed for rating purposes? All ratings are fully recalculated annually based on the latest features offered by each lender. CANSTAR also monitors changes on an ongoing basis. The results are published in a variety of mediums (newspapers, magazines, television, websites etc). How are the stars awarded? CANSTAR ranks personal loans based on value-for-money measures and then awards star ratings according to rank. The number of products awarded each of the 5 to 3 star ratings will ultimately depend on the dispersion of final scores. Scores are awarded to each product on the basis of price and features. The methodology is revised and parameters are updated on a regular basis to make sure that the products are analysed using the most up-to-date information capturing all industry developments. Does CANSTAR rate all products available in the market? We endeavour to include the majority of product providers in the market and to compare the product features most relevant to consumers in our ratings. However this process is not always possible and it may be that not every product in the market is included in the rating nor every feature compared that is relevant to you. Does CANSTAR rate other product areas? CANSTAR researches, compares and rates the suite of banking and products listed below. These star ratings use similar methodologies to guarantee quality, consistency and transparency. Results are freely available to consumers who use the star ratings as a guide to product excellence. The use of similar star ratings logos also builds consumer recognition of quality products across all categories. Please access the CANSTAR website at if you would like to view the latest star ratings reports of interest. Business deposits Cash PIE Credit cards Credit card rewards Home loans KiwiSaver Online banking Personal loans Savings accounts Transaction accounts Term deposits COPYRIGHT CANSTAR New Zealand Limited ( ), The recipient must not reproduce or transmit to third parties the whole or any part of this work, whether attributed to CANSTAR or not, unless with prior written permission from CANSTAR, which if provided, may be provided on conditions. DISCLAIMER To the extent that any CANSTAR data, ratings or commentary constitutes general advice, this advice has been prepared by CANSTAR New Zealand Limited ( ) FSP and does not take into account your individual investment objectives, financial circumstances or needs. Information provided does not constitute financial, taxation or other professional advice and should not be relied upon as such. CANSTAR recommends that, before you make any financial decision, you seek professional advice from a suitably qualified adviser. A Product Disclosure Statement relating to the product should also be obtained and considered before making any decision about whether to acquire the product. CANSTAR acknowledges that past performance is not a reliable indicator of future performance. YOUR GUIDE TO PRODUCT EXCELLENCE