💳 Credit CardsThe annual interest rate and the cost of credit: how to compare
When you compare loans, credit cards and finance offers in New Zealand, there is no single legally mandated 'APR' figure like in some other countries. Instead, under the Credit Contracts and Consumer Finance Act (CCCFA), a lender must disclose the annual interest rate, every fee, how interest is calculated, and the total amount of payments. To compare fairly you need to add the interest and the fees together over the life of the loan. This guide shows how.
What the lender must disclose
The disclosure statement for a consumer credit contract must show the annual interest rate (or rates), the total amount of interest you will pay if you make only the scheduled payments, every credit fee and default fee, and the total of all your payments. For a fixed loan it also shows the payment amount and number of payments.
Fees can include an establishment or application fee, a monthly account fee, and sometimes a fee paid to a broker. On a small, short loan a fixed establishment fee can dwarf the interest — a $1,000 loan over three months with a $200 establishment fee costs you far more in fees than in interest.
How to compare
Add the total interest and all the compulsory fees, then compare that total against the amount borrowed and the term. Always compare offers with the same loan amount and the same term. Do not compare on the weekly or fortnightly payment alone — a longer term makes an expensive loan look cheap by spreading it out.
For a credit card, the number that matters if you sometimes carry a balance is the purchase interest rate plus the annual fee. If you always pay in full, the effective cost is just the annual fee (and any foreign transaction fees).
CCCFA protections
The CCCFA requires lenders to lend responsibly: they must be satisfied you can repay without substantial hardship, and fees must be reasonable and reflect the lender's actual costs. There are extra rules and interest-rate and fee caps for high-cost consumer credit — loans with an interest rate of 50% a year or more — which have curbed the worst payday lending.
If a loan feels wrong — the fees seem excessive, or you were not asked about your income and expenses — you can complain to the lender and then to their dispute resolution scheme, and the Commerce Commission oversees the CCCFA.
Frequently Asked Questions
- Why doesn't New Zealand use an APR?
- New Zealand law requires lenders to disclose the annual interest rate and all fees separately, plus the total of payments, rather than combining them into a single APR figure. You do the combining yourself by adding total interest and total fees.
- Why is a small short-term loan so expensive?
- Because fixed fees, such as an establishment fee, are spread over a small amount and a short term. The same fee on a large loan over a long term is a much smaller share of the cost. Always look at total interest plus total fees against the amount borrowed.
- What is high-cost consumer credit?
- A consumer loan with an annual interest rate of 50% or more. It is subject to extra CCCFA rules, including a cap on total interest and fees at 100% of the amount borrowed, and a daily rate cap. These rules were brought in to curb payday lending.
Informational content, not financial, tax or legal advice. Check amounts, limits and current rules directly with the official sources (Work and Income, the Reserve Bank of New Zealand, Inland Revenue, the Depositor Compensation Scheme) before making a decision.
