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Borrowers Choose Long Term Pain over Short Term Gain

PRESS RELEASE

Borrowers Choose Long Term Pain over Short Term Gain

FRIDAY 20 NOVEMBER 2015 – NZCU Auckland today released the findings from a survey conducted amongst its customers regarding their borrowing habits and to what degree they understand the long term impact of those decisions.

NZCU Auckland General Manager Rob Collins commented that “we wanted to understand better what our Members thought about the options open to them when it comes to making borrowing decisions”.

The Credit Union posed a simple question with two options:

If you wanted to borrow $15,000 for a car or other major item, which option would be cheapest?
1. A personal loan at 12.95% pa over 4 years; or
2. Topping up a mortgage at 6.00% pa over 15 years.

The results showed that 86% of respondents correctly selected the first option (in fact, the mortgage option is more costly by $3,483) while 14% incorrectly thought the mortgage option was cheapest. When benchmarked against actual behaviour, it was found that even some of those who knew the mortgage top up option would cost them a lot more in interest still chose it because it reduced their weekly repayments.

“We found this a difficult rationale to understand,” said Rob, “that people would choose to pay thousands of dollars in extra interest rather than pay off the loan quicker and get debt free.”

Some borrowers acknowledged that they were overcommitted with debt when they topped up their mortgage and just couldn’t afford all the repayments. However, most just wanted to have more money left in their wallet regardless of the long term cost.

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“This is an area of financial literacy where we believe more work needs to be done,” said Rob. “We have been concerned for some time at the number of financial advisers who are on T V actually recommending that people transfer short term loans into long term mortgages on the pretext that they will save money. We have proved the opposite is correct.

Our goal is to help our Members improve their financial wellbeing and we can do that because Credit Unions are unique businesses. They are owned by their Members and run by their Members for the benefit of their Members. This business model ensures that Members’ interests come first and Credit Unions are successful regardless of the financial problems in the rest of the economy.”

Customer satisfaction was also measured in the same survey and resulted in what has been described as a “world class” result. Using the internationally recognised Net Provider Score® (NPS) methodology, NZCU Auckland scored an NPS of 56 compared to the banking industry average of just 13.

“This is one of the best results achieved by any banking organisation in New Zealand and we are immensely proud of it,” said Rob. “It spurs us on to do better next time.”

ENDS

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