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What is a personal loan?

A personal loan is a loan from a lender to a borrower, to be used for a private reason. They are separate and different to loans for property, businesses and investments, and tend to be for smaller amounts.

There are usually two purposes for taking out this type of loan:

  1. Big-ticket household items, including cars, furniture, elective surgery, or holidays
  2. Consolidating your loans into a single more manageable debt

Part of the reason personal loans are used instead of credit cards is that they can have a lower interest rate.

But before you take on additional financial obligations, such as a personal loan, always seek good financial advice. You need to work out a solid budget and know that you can afford the monthly loan repayments.

Also, always compare different loans and lenders to ensure you’re getting the best deal.

Different types of personal loans

Personal loans can be fixed rate or floating, which refers to the interest rate that applies to the loan.

Personal loans can be secured or unsecured.

Secured loans:

When you use something that you own, like your car, as security against your debt. If you are unable to repay the personal loan, the lender may sell your possession to recover the debt. View secured personal loans on our website.

Unsecured loans:

The lender agrees to lend you money without you making a promise of security. If you aren’t able to repay an unsecured personal loan, the lender might take you to court. Because there is more risk involved with this type of loan, lenders usually charge higher interest rates. View unsecured personal loans here.

personal overdraft is a type of unsecured personal loan. An overdraft feature attached to your savings or debit bank account lets you spend more money than you have, to an approved limit. This limit is usually quite small, around $500. Interest is charged on any amount you spend in the overdraft. When you use the overdraft, a monthly fee is charged, and when the overdraft is inactive, you only pay the normal fees for your savings or debit account.

How much does a personal loan cost?

How much you pay for a personal loan depends on how much you borrow, how long you take to pay it off, and the interest rate that applies.

At time of writing, December 2023, interest rates for secured and unsecured loans on Canstar’s database range between 8.99% and 24.99%.

As interest rates change regularly, you can compare updated personal loan rates and car loan rates using our free comparison tools.

How much can I borrow with a personal loan and for how long?

Personal loans can be taken out for periods as short as three months, or as long as 20 years. Student loans are an exception to this, and you can read more on student loans below. While secured personal loans and car loans can run for terms of up to 20 years, unsecured personal loans generally have a shorter term. Because they are riskier for lenders, they are usually 10 years or less

Personal loans can be for amounts up to $100,000, but are usually taken out for smaller amounts.

What is a payday loan?

A payday loan is a small, short-term, unsecured loan, where the repayments coincide with the borrower’s payday. Payday loans are typically for small amounts and incur higher rates of interest.

Payday loans are usually used by consumers who are hit by sudden and unexpected expenses. Payday loans are not a sensible long-term solution for getting out of debt, given their high interest rates and short time frames.

What is a peer-to-peer loan?

Peer to peer (P2P) loans are a type of loan where people borrow money directly from individual investors, instead of applying for a loan from a bank.

P2P lending can be an attractive option, because of lower fees and interest rates. P2P lenders are legally required to give borrowers the same disclosure statement and client agreement as banks and other lenders.

How to apply for a personal loan:

Before you apply, you need to do your homework and answer these questions:

  1. How much can you afford to borrow?

Write a budget that includes all your living expenses. Once you know how much you can comfortably afford in repayments, you’ll be able to gauge how much you can afford to borrow.

Don’t forget that a loan costs more than just its repayments – there are also other fees and charges. Loan establishment fees can be around $250, and there can be additional monthly fees.

Some banks have a minimum amount you can borrow, such as $3000. And many will offer you a larger loan than you need. But stick to the amount you want to borrow.

We have a number of calculators on our website to help you plan your budget. For more information, click this link.

  1. How long do you want your loan repayment period? 

A shorter loan comes with higher monthly repayments. A longer loan costs more in interest payments. Choose the shortest loan term that you know you can comfortably afford.

Some lenders charge an early repayment fee. Keep this in mind if you intend to pay off your loan early.

Make sure you check the fine print and ask questions before applying, so you are fully aware of the loan’s true cost.

  1. What type of loan do you want: secured or unsecured?

Secured loans offer a lower interest rate, but you risk losing the property you put up as security if you don’t make all the repayments. Unsecured loans have higher interest rates, so they can cost you more.

Whichever type of loan you chose, if you miss your repayments, it can affect your credit rating. This will make it harder for you to secure loans, including mortgages, in the future. 

  1. Do you want a fixed or floating interest rate?

A fixed interest rate gives you the certainty of knowing what your repayments will be. But there’s the risk that if interest rates drop significantly, you’ll be left paying a higher rate. 

Floating rates are usually higher than fixed rates, but do move up and down, meaning you’ll pay less if rates drop.

Be wary of introductory offers that start with a low interest rate but switch to a high rate after the introductory period. You want to pay a low amount of interest over the entire life of your loan.

Also, check out cashback offers carefully, to make sure they’re not hiding higher account-keeping fees.

  1. Do you know your credit rating?

Your credit rating is a measure of your trustworthiness to repay a loan. Lenders use it to decide whether to approve or reject loan applications.

You should check out your credit report before you apply for a loan, to avoid nasty surprises. Otherwise, if you apply and are rejected, a big black mark will be added to your credit report.

There are three credit reporting companies in New Zealand that you can contact about getting a copy of your credit report:




For more about accessing your credit rating, check out the government’s consumer rights page.

If you have a less-than-perfect credit report, check out our tips for improving your credit situation.

  1. Is your paperwork in order?

A lender will want you to provide:

  • Proof of income, such as a payslip or tax return
  • Proof of your current ongoing expenses, such as rent and bills
  • Copies of your current bank statements to show savings and repayments being made on credit cards
  • Personal identification, for example a passport or driver’s licence
  1. Have you shopped around?

Look for a loan that suits your budget and provides great value for money. Compare personal loans on the Canstar website, or read our most recent personal loan star ratings for more information.

What can I use a personal loan to buy?

You can use a personal loan to pay for just about anything that’s for personal use:

  • Car
  • Caravan or motorhome
  • Boat
  • Debt consolidation
  • Overseas holiday
  • Education or study
  • DIY home renovation project
  • Wedding

How much you pay for a personal loan depends on how much you borrow, how long you take to pay it off, and the interest rate that applies. At time of writing, December 2023, interest rates for secured and unsecured loans on Canstar’s database range between 8.99% and 24.99%.

There are also other fees and charges, which can quickly add up:

  • Establishment fee: some lenders don’t charge establishment fees, although will hit you with higher interest rates. Others charge a fee depending on the size of your loan. Always be aware of how much you’re paying as a proportion of your loan. For example, a company has a $100 establishment fee for loans up to $1000, so you’re paying a 10% fee for a $1000 loan. But for loans between $1,001 to $3500, the rate increases to $250. So, if you’re borrowing $1500, you’re being charged a fee of approx 17%.
  • Brokerage fees – be very careful of these. Some loan websites belong to brokerages, not loan providers. For recommending your business to a loan provider, the brokerage will exact a fee, which can be up to $1000.
  • Administration fee – this is an ongoing fee charged over the life of your loan to cover the costs of administration. Some lenders don’t charge this fee. Although some charge $7.50 per month. Over a five-year loan, a $7.50 monthly fee adds up to an extra $450 on your repayments!
  • Variation fee: to change the terms of your loan
  • Full repayment fee: to pay off your loan early. This can run into big amounts if it covers the lender for any loss of interest
  • Tracking device charge: some car loan companies charge to fix a tracking device to your new car, to ensure vehicle recovery should you default on payments!

Personal loan glossary of terms

Please note that these are a general explanation of the meaning of terms used in relation to personal loans.

Policy wording may use different terms and you should read the terms and conditions of the relevant policy to understand the inclusions and exclusions of that policy. You cannot rely on these terms to the part of any policy you may purchase. You should refer to the product disclosure statement.

Account-keeping fee / administration fee: A monthly account-keeping fee that is charged by the lender to cover the administration cost of maintaining the loan.

Annual percentage rate: A percentage figure that represents the total charge for the loan, including fees and interest, so that you can compare rates across the market. (We’ve done the hard work for you on our comparison website.)

Approval fee / application fee: A fee charged by the lender to process your loan application and approval. Covers the cost of document searches, valuations of any security assets, and processing the loan.

Asset: Something you own or something you own an interest in, which is worth money if you sell it.

Automatic transfer: A system that automatically sends money from one bank account into a different account at a certain date to pay your bills or payments when they are due.

Balance: The amount remaining to be paid off your loan. The closing balance is calculated at the end of a month or statement period, after all repayments have been taken into account. The opening balance is the closing balance of the month before.

Bankruptcy: This is when a person’s debt problems become so serious that they cannot pay off their debt or pay other bills. The person can file for bankruptcy with a court, which means they are declared bankrupt and any assets or savings they have are sold to pay off their debts. This only includes the person’s assets, not their partner’s. Someone who is bankrupt usually cannot be approved for credit or loans. After three years, a person is discharged (released) from bankruptcy, or they can apply to the court to be discharged sooner. They will still have a black mark on their credit report.

Basis points: A basis point is equal to 0.01% interest. For example, 50 basis points is an interest rate of 0.50%.

Borrower: A person borrowing money from a financial institution. Also known as a debtor.

Car loan: A personal loan designed for buying a car. Also known as a vehicle loan.

Cash advance: Withdrawing money from a line of credit, such as a personal loan. Usually incurs additional fees or a higher rate of interest.

Caveat emptor: Latin for “let the buyer beware”.

Comparison rate: A figure that represents the total annual cost of the loan, including interest rates, payments, and fees and charges.

Consumption loan debt: Personal loan debt used to purchase things that are used immediately or depreciate from the time they are bought. This includes goods and services such as holidays, hire purchase, cosmetic surgery, furniture, furnishings.

Credit rating: A number that represents the credit-worthiness of an individual or corporation, based on their positive and negative borrowing and repayment history. Your credit rating is affected by whether you pay your bills on time, your current level of debt, the types of credit and loans you have, and the length of your credit history. Your credit rating and credit report are used by lenders when deciding whether or not to lend to you. Find out how to check your credit rating here.

Credit report or credit history: A report from a credit agency that contains a history of your previous loan and bill payments. Banks, lenders, creditors and financial institutions use this report to determine how likely you are to repay a future debt and whether or not they should lend money to you.

Lenders can record a default on your file if you make loan repayments late. Every application for finance that you make is recorded on your file showing the lender you applied to, the type of finance, the amount and the date.

Creditor: A person or organisation to whom you owe money, usually a financial institution. Also known as a lender.

Current Rate: The interest rate advertised by institutions, not including fees, discounts and special offers.

Debt: Money owed by one person (the debtor) to another person or financial institution (the creditor). Debt requires that there is a contract for the debtor to pay back the money. A debt is also known as a liability.

Debt consolidation or consolidation loan: When you take out one loan to pay off multiple other loans or credit card debts, so that it’s more affordable and you only have to make one monthly repayment, instead of many. A debt consolidation loan should have a lower, fixed interest rate.

Debtor: A person who takes out a loan. Also known as a borrower (above).

Default: When a cardholder fails to make the minimum required repayment on their loan. Defaults are recorded in your credit report and have a bad effect on your credit rating.

Drawdown: When a lender draws down the loan from their funds into your bank account and the borrower uses the money. Interest is usually charged from the day the loan funds are transferred to the borrower’s bank account.

Drawdown date: The date on which you first use the money loaned to you.

Equity: When you borrow money to buy an asset, equity is the difference between the value of the asset and how much you have left to pay off. For example, if an owner buys a car with a loan for $10,000 and has repaid $3000, the owner has equity of $7000 on the car. Also known as a residual claim to ownership.

Extra repayments: Extra payments that you choose to make to your loan on top of the minimum required repayments. These make you pay off your loan faster and pay less in interest. Also known as additional repayments.

Fixed rate: A loan where the interest rate does not change during the term of the loan or during a specific time period, regardless of whether the Reserve Bank official cash rate goes up or down.

Floating rate: An interest rate that changes when the official cash rate set by the Reserve Bank of New Zealand goes up or down. The interest rate on a floating-rate loan changes regularly, so you’ll pay a different amount each time it changes.

Guarantee: A promise you make to pay someone else’s loan if they fail to meet their required repayments or break their loan contract. Also known as an undertaking.

Interest in advance: Interest payments are charged at the beginning of a period. Usually only applies to fixed-interest loans.

Interest in arrears: Interest payments are charged at the end of a period.

Interest rate: The rate at which your outstanding loan balance increases per month if you don’t pay it off.

Lender: A financial institution offering a loan. Also known as a creditor, because they are offering an amount of credit.

Loan: Money borrowed by one person from another person or financial institution. Interest is charged on the amount until it’s fully repaid, and it must be repaid within a set time frame.

Maximum loan amount: The maximum amount of money you can borrow from the lender in one loan.

Minimum interest charge: The minimum amount of interest a bank will charge on your loan. For example, if your total interest charge was $0.75 but the bank’s minimum interest charge was $1, you would be charged $1.

Minimum loan amount: The minimum amount the lender requires you to borrow from them.

Minimum repayment: The minimum amount of money you must pay off from your loan.

Ombudsman: If you have a dispute with your bank and aren’t able to resolve it through the bank’s complaints resolution process, you can contact the New Zealand Banking Ombudsman Scheme, or the Insurance & Financial Services Ombudsman Scheme (IFSO Scheme).

These are free and independent services that help people resolve disputes with banks and other financial institutions.

Reserve Bank cash rate: The interest rate that the Reserve Bank of New Zealand offers financial institutions for their daily transactions with other banks. This cash rate influences the interest rates that banks put on their customers’ loans.

Redraw: A feature of some loans that allows the borrower to withdraw funds they’ve already paid, if they are far enough ahead on loan repayments.

Refinancing: Paying off an existing loan by setting up a new loan.

Repayment holiday: A borrower who is ahead on their required repayments can apply to have a holiday, during which time they don’t have to make further loan repayments.

Secured loan: A loan where the borrower provides an asset as security (insurance) for their debt. Secured loans usually have lower interest rates than unsecured loans, because there is a lower risk to the bank of losing their money.

Unsecured loan: A loan where the borrower does not provide any asset as security for their debt. Because the loan is not insured, it’s a higher risk, so lenders charge higher interest rates than for secured loans.

Managing and repaying personal loan debt

Are you in debt to a stressful point? Are you

  • Constantly worrying about how to pay bills?
  • Using credit to pay for more credit?
  • Frequently borrowing money from friends and family to make ends meet?

If you know your debt is out of control, take control of it now using the following steps.

Step 1: Negotiate with your lender.

The first step should always be to try to negotiate with your loan provider. Ask them if you can make smaller monthly repayments or pay a lower interest rate, and explain that your budget is currently struggling to repay your debt. If they refuse and you think they are being unfair, you should contact New Zealand’s free dispute resolution schemes for finance and banking:

If you don’t feel confident to talk to your lender on your own, you can contact a free debt management service such as Christians Against Poverty New Zealand.

Step 2: Create a budget

Face up to the problem: you are in debt. List all of the money you owe, from credit cards to personal loans, to bills you haven’t paid yet, and the interest rates you’re paying on those amounts.

Sit down and write out a budget listing all of your weekly expenses. This is the only way to work out how much you can afford to repay on your debts each month.

Step 3: Consolidate your debt.

Check out what interest rates are on offer and put the whole debt into one place. Whether that means putting the debt onto a personal loan, a low rate credit card, or a balance transfer, look for a very low interest rate.

If you choose a personal loan, opt for one with a fixed rate, so you know how much to budget for your monthly repayments.

Also, go for a loan with a longer time frame, so the repayments are more affordable. Remember to check for early repayment fees.

Step 4: Protect your new budget

Switch to cash! Cut up your credit cards and close the accounts, to avoid impulse spending.

Watch what you spend and check that you’re following your budget.

Make extra repayments as often as you can, so that you’re covered if things are particularly tight one month and you need to make a smaller payment. Nobody wants to pay a missed payment fee.

Paying off your debt is more important than having savings. Also, don’t invest, or you risk losing more money.

Be patient. It will take time to pay off your loan, but if you stick to your budget you can look forward to finally becoming debt free.

Step 5: Ask for help if you need it.

If you’re eligible for government welfare payments through Work and Income, get in touch right away.

And don’t be embarrassed about reaching out for help from places such as the free financial helpline MoneyTalks.

The sooner you reach out for help, the better.

How we rate personal loans

Canstar currently analyses 54 Personal Loans/Car Loans from 12 financial institutions in New Zealand. All ratings are re-assessed every year.

We assess two categories of personal loans:

  1. Car Loan: Loans must be available for car purchase and be available for $30,000 for a loan period of five years.
  2. Unsecured Personal Loan: Loans must be available for either debt consolidation (excluding loans exclusively for debt or holidays) and be available for $15,000 for a loan period of three years.

We compare personal loans within those three categories according to characteristics including the following:

  • Lending terms and conditions: min/max conditions, income/repayment ratio, interest rate.
  • Loan purpose: New or used cars, motorcycles, holidays, renovations, etc.
  • Deposit requirements: 100% loan availability, min/max deposit requirements.
  • Security requirements: unsecured, partially secured, bill of sale, lien of term deposit.
  • Repayment capabilities: minimum repayment requirements, repayment options and avenues.
  • Application process: channel availability (application through branch, internet, broker, phone), required documents (bank reference, pay slips, proof of residency, tax return), turnaround times (the amount of time taken to complete standard approval).
  • Additional fees and charges: repayment penalties, missed payment penalty.
  • Redraw/offset facility: availability, conditions, fees.
  • Statement options: frequency options, online option.