Comparing Traditional Banks and finance company in NZ

Comparing Traditional Banks and finance company in NZ

When considering financial services in New Zealand, you may wonder what the difference is between traditional banks and finance company. Both institutions offer a range of products and services, such as loans, savings accounts, and credit cards.

However, there are some key differences to be aware of before deciding. We discuss them below.

What are traditional banks?

Traditional banks are financial institutions that offer a wide range of products and services, including retail and commercial banking, investment banking, and asset management. The Reserve Bank of New Zealand regulates these banks, and they must meet certain financial requirements.

What are finance companies?

Finance companies are non-bank institutions that offer a range of financial products and services, such as loans, savings accounts, and credit cards. They are not regulated by the Reserve Bank of New Zealand to the same extent as traditional banks.

Key differences between traditional banks and finance companies

Products and services

Traditional banks offer a wider range of products and services than finance companies, including retail banking products such as checking and savings accounts, credit cards, and mortgages. They also offer commercial banking products such as business loans and overdrafts.

Regulation

Traditional banks are more heavily regulated than finance companies. This regulation means they must meet certain financial requirements and are subject to stricter oversight.

Eligibility criteria

Finance companies often have less stringent eligibility criteria than traditional banks. As a result, they may be more willing to lend to people with poor credit histories or limited collateral.

Interest rates

Finance companies typically charge higher interest rates than traditional banks. This increased interest is because they are not regulated to the same extent and take on more risk when lending money.

Advantages and disadvantages of traditional banks and finance companies

Traditional banks

Advantages

  • Wide range of products and services
  • Heavily regulated
  • More stable and secure

Disadvantages

  • More difficult to get a loan if you have a poor credit history or limited collateral
  • May charge higher fees

Finance companies

Advantages

  • Less stringent eligibility criteria
  • May be more willing to lend to people with poor credit histories or limited collateral
  • May offer lower fees

Disadvantages

  • Typically charge higher interest rates
  • Not as heavily regulated
  • Can be less stable and secure

Which type of institution is right for you?

The best institution for you will depend on your individual needs and circumstances.

If you are looking for a wide range of products and services and are comfortable with the stricter eligibility criteria, then a traditional bank may be the right choice.

A finance company may be a better option if you have difficulty getting a loan from a traditional bank due to a poor credit history or limited collateral.

In addition to the key differences listed above, there are a few other things to consider when choosing between a traditional bank and a finance company.

Reputation

Ensuring you select a trustworthy institution is crucial. To accomplish this, consider conducting thorough research. You may explore online reviews or seek recommendations from acquaintances in your network.

Customer service

Customer service is another important factor when choosing between a traditional bank and a finance company.

Traditional banks typically have more resources to invest in customer service. This means they can help you quickly and easily if you have a problem. However, finance companies are often smaller and more nimble than traditional banks, meaning they can provide personalised customer service.

Fees

Traditional banks and finance companies both charge fees for their services. However, the fees can vary widely. It is important to compare the fees charged by different institutions before making a decision.

Convenience

Consider how important convenience is to you. Traditional banks typically have more branches and ATMs than finance companies. Accessing your money and services may be easier if you choose a traditional bank.

Your personal preferences

Ultimately, the best way to decide which type of institution is right for you is to consider your personal preferences.

Once you have considered all of these factors, you will be better able to decide which type of institution is right for you.

Tips for choosing a finance company

If you are considering using a finance company, here are a few tips:

Do your research

Compare the products and services offered by different finance companies. Read online reviews and ask people you know for recommendations.

Check the reputation of the company

Make sure the finance company is reputable and has a good track record. You can check the Financial Markets Authority website for more information.

Compare the fees and interest rates

Finance companies can charge different fees and interest rates. Be sure to compare the different options before choosing a loan.

Read the terms and conditions carefully

Before signing any documents, it’s essential to understand the loan’s terms and conditions clearly.

Choosing between a traditional bank and a finance company in New Zealand is not a one-size-fits-all decision. It depends on your unique financial goals, risk tolerance, and preferences. 

Remember, the right choice is the one that empowers you to achieve your financial aspirations with confidence.

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