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

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YOUR GUIDE TO PRODUCT EXCELLENCE

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 2009. 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

% rate

Official cash rate Margin

1 Nov 11 15.81% 2.50% 13.31%

1 Nov 12 15.80% 2.50% 13.30%

1 Nov 13 16.00% 2.50% 13.50%

Source: CANSTAR personal loan star ratings, November 2013

IN THIS REPORT

We research and rate 19 products from 9

providers to determine those which offer

outstanding value for consumers.

Report No. 3 November 2013

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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.

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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 Disciplined repayment plan

Flexibility to use it whenever you need it, subject to borrowing limit

Readily available source of pre-saved funds

Cons

Not as flexible as Credit Cards, with a higher average interest rate than

home loan redraw

Higher average interest rate than personal loan or

home redraw. Can be an expensive “credit trap” for undisciplined spenders

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?

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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.

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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.

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

At the end of 3rd year Interest Rate

p.a. Monthly repayment

Total Interest Paid Closing Balance Personal Loan 3 years 15.89% $351.03 $2,636.99 Nil Credit Card 3 years 18.69% $335.33 $2,071.94 Nil

Personal Loan vs Credit Card: Minimum Repayment

At the end of 3rd year

Years repaid in Interest rate p.a. Monthly Repayments Total Interest Paid Closing Balance Personal Loan

3 years 15.89% $351.03 $2,636.99 Nil 3 yrs

Credit Card Minimum

Repayments 18.69% 5% or $10 $3,205.21 $2,508.48

10 yrs 11 mnths

Personal Loan vs Credit Card: Total repaid in 3 years

At the end of 3rd year Interest Rate

p.a. Monthly repayment

Total Interest Paid Closing Balance Personal Loan 3 years 15.89% $351.03 $2,636.99 Nil Credit Card 3 years 13.20% $318.12 $1,452.38 Nil

Personal Loan vs Credit Card: Minimum Repayment

At the end of 3rd year

Years repaid in Interest rate p.a. Monthly Repayments Total Interest Paid Closing Balance Personal Loan

3 years 15.89% $351.03 $2,636.99 Nil 3 yrs

Credit Card Minimum

Repayments 13.20% 5% or $10 $2,015.96 $2,190.71

9 yrs 11 mnths

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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 (3225469), 2008-2013. 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 (3225469) FSP 200146 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.

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Company Name Product Apply Unsecured

online Minimum Maximum

Loan Amount ($)

Loan Term

Debt Consolidation Loan

Rate (as at 1 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.

Personal Loan Star Ratings

Report Date: NOVEMBER 2013

100% Loan Available

Monthly Application

Loan Fees ($)

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 18.20



0 250 1000 30000 variable



Co-operative Bank Personal Loan Unsecured 14.50 to 19.50

_

0 200 0 30000 1 mth to 5 yrs

_

TSB Bank Personal Loan Unsecured 13.09



0 150 500 20000 1 yr to 5 yrs





ANZ Bank NZ Fixed Personal Loan 16.95 to 17.95

_

0 250 3000 No Max 6 mths to 7 yrs

_

ASB Bank NZ Debt Consolidation 15.50



0 250 2000 No Max 1 yr to 5 yrs



NZCU Baywide Unsecured Personal Loan 13.95 to 21.95

_

0 200 1000 No Max 1 yr to 10 yrs

_

Westpac NZ Personal Loan Unsecured 17.95 to 18.95



0 250 0 No Max variable





ASB Bank NZ Personal Loan Unsecured 17.95



0 250 2000 No Max 1 yr to 5 yrs



GE Money NZ Debt Consolidation Loan 15.99 to 29.99



0 275 3000 50000 6 mths to 7 yrs



GE Money NZ Personal Loan Unsecured 15.99 to 29.99



0 275 3000 50000 6 mths to 7 yrs



Kiwibank NZ Personal Loan 14.99

_

0 250 3000 100000 6 mths to 7 yrs

_

your guide to product excellence

PERSONAL LOAN STAR RATINGS 2013 - PAGE 1 Report Date: November, 2013 (All information correct as at 1 November 2013)

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Home Renovation

Unsecured Personal Loans

Maximum Monthly

Product Holiday Consolidate Debt

Personal Loan Star Ratings

Company Name Minimum Loan Amount ($) Loan Term Rate (as on 1 November 2013) Application Loan Fees ($) Apply Online

All ratings take into account costs and features - see our methodology document for further details Outstanding value





Co-operative Bank Personal Loan Unsecured 14.50 to 19.50 0 200 0 30000 1 mth to 5 yrs





TSB Bank Personal Loan Unsecured 13.09 0 150 500 20000 1 yr to 5 yrs





ANZ Bank NZ Fixed Personal Loan 16.95 to 17.95 0 250 3000 No Max 6 mths to 7 yrs



Bank of New Zealand NZ Advanced Personal Loan 18.20 0 250 1000 30000 variable



NZCU Baywide Unsecured Personal Loan 13.95 to 21.95 0 200 1000 No Max 1 yr to 10 yrs



Westpac NZ Personal Loan Unsecured 17.95 to 18.95 0 250 0 No Max variable





ASB Bank NZ Personal Loan Unsecured 17.95 0 250 2000 No Max 1 yr to 5 yrs



GE Money NZ Personal Loan Unsecured 15.99 to 29.99 0 275 3000 50000 6 mths to 7 yrs



Kiwibank NZ Personal Loan 14.99 0 250 3000 100000 6 mths to 7 yrs

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Secured Personal Loans

Maximum Monthly Product Consolidate Debt Application

Personal Loan Star Ratings

Company Name Apply Loan Fees ($)

Online Minimum Loan Amount ($) Loan Term Rate (as on 1 November 2013) Home Renovation Holiday

All ratings take into account costs and features - see our methodology document for further details  Outstanding value



Co-operative Bank Personal Loan Secured 10.50 to 12.95 0 200 3000 No Max 1 mth to 5 yrs





TSB Bank Personal Loan Secured 11.09 0 150 500 20000 1 yr to 5 yrs







Co-operative Bank Vehicle Loan 12.95 to 17.95 0 200 3000 No Max 1 mth to 5 yrs



Westpac NZ Personal Loan Secured 16.25 0 250 0 No Max variable





ASB Bank NZ Personal Loan Secured 14.95 0 250 2000 No Max 1 yr to 5 yrs





GE Money NZ Car Loan Secured 11.99 to 18.99 0 275 3000 50000 6 mths to 7 yrs





Kiwibank NZ Vehicle Loan 12.99 to 18.99 0 275 3000 No Max 6 mths to 7 yrs



NZCU Baywide Secured Personal Loan 13.95 to 17.95 0 200 1000 No Max 1 yr to 10 yrs

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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 Description

Debt Consolidation

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

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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

Pricing Score

70%

Feature Score

30%

Total Cost

Includes interest cost, establishment fee, ongoing costs and any one-off

fees (Doc fee & Doc release fee)

Features

Includes over15 different categories

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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% Min/Max conditions, income/repayment

ratio, approval conditions, rate

Repayment Capabilities 23% 21% 17% Min repayment requirement, avenues,

repayment options

Security Requirements - - 3% Unsecured, partial, bill of sale, lien of

Term deposit

Channel Availability 7% 6% 6% Application through: Branch, Internet,

Broker, Phone

Document Required 6% 6% 5% Bank reference, pay slips, proof of

residency, tax return

Fees & Charges 11% 10% 10% 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% Loan purpose insurance, loan insurance

details

Deposit Requirements - - 5% 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,

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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 www.canstar.co.nz if you would like to view the latest star ratings reports of interest.

COPYRIGHT

© CANSTAR New Zealand Limited (3225469), 2008-2013. 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 (3225469) FSP 200146 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.

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