High-cost credit in New Zealand: what counts and what the rules say
In New Zealand a loan is a high-cost consumer credit contract when its annual rate, counting interest, fees and default interest, reaches 50% or more. Extra rules then apply, including a cap on how much you can be made to repay and a ban on compound interest. Most car loans sit well under that line, but some lenders and add-ons push the cost up, so it pays to know where the line is.
The short answer
“High-cost credit” is a legal term in New Zealand, not a marketing one. A consumer credit contract is high-cost when the lender’s annual rate is 50% or more. The rate is measured broadly: interest, fees and default interest all count towards the 50%.
Once a contract crosses that line, a tighter set of rules switches on. The most important ones limit how much you can be asked to repay, stop interest being charged on interest, and limit how quickly you can pile one high-cost loan on top of another.
If you are reading this because you are comparing car finance with a bad credit history, the rest of this page will help you tell an expensive-but-normal car loan from something that should worry you. Nobody can promise approval, and lenders decide case by case, but you should not have to accept a deal that falls outside these limits.
What counts as high-cost
The Credit Contracts and Consumer Finance Act 2003 (often shortened to the CCCFA) sets the test. Community Law’s manual puts it this way: a high-cost consumer credit contract has an interest rate of 50% or more, whether that comes from the annual interest rate, other fees or default interest.
Three points are worth holding onto:
- It is about the whole price, not the headline rate. A loan advertised at 40% with a 15% default rate can still be high-cost if the combined rate is likely to reach 50%. Fees can push a loan over the line too.
- It applies to consumer credit. That means credit for personal, domestic or household use. A loan taken out for a business is treated differently, and you should check consumerprotection.govt.nz if you are unsure which side you are on.
- The label does not matter. Payday loan, short-term loan, fast cash loan or finance product: if the numbers reach 50%, the high-cost rules apply.
Consumer Protection notes that the 50% threshold has been under review. MBIE has consulted on whether it should be lowered to somewhere between 30% and 50%. That was a proposal at the time of writing, so check the current figure on the official pages below before you rely on a number.
The caps in plain language
The protections for high-cost contracts are specific. Based on Community Law and Consumer Protection:
| Rule | What it means |
|---|---|
| Daily interest cap | Interest cannot exceed 0.8% a day |
| Total cost cap | Interest, fees and charges together cannot exceed the first amount you borrowed |
| Default fee cap | Default fees of $30 or less, unless the lender can prove a higher fee is not unreasonable |
| No compound interest | The lender cannot charge interest on interest already added |
| Multiple loans | No new high-cost contract if you were repaying one in the last 15 days, or have signed two in the last 90 days |
The total cost cap is the one that stops the worst outcomes. Consumer Protection describes it as a cap on repayments at twice the amount borrowed. On a $500 loan, the most you should ever repay is $1,000.
The daily cap is generous. 0.8% a day works out to around 292% a year if you simply multiply it out, so it rarely bites on its own. Most of the protection comes from the total cost cap and the rules around repeat borrowing.
Why this matters for car finance
Most car loans are priced well under 50% a year, although rates rise for people with defaults or missed payments because the lender is pricing in more risk. Our page on car finance interest rates shows how a rate is built up.
The high-cost rules still matter for car buyers in three ways.
- Short-term loans taken to cover a car expense. A payday loan to pay for repairs, registration or a deposit is the commonest way people meet high-cost credit. It can quickly make a car loan harder to place, because the lender sees the repayments and the borrowing pattern on your bank statements.
- Default interest. A normal-looking car loan can become high-cost if the default rate is steep. This is one reason to read the contract’s default clause before you sign.
- Pay-as-you-go deals. Some buy-here-pay-here arrangements are priced very high. If you are looking at one, read our page on buy here pay here finance and check the total repayment against the car’s real price.
A worked example
The numbers below are illustrative only, to show the method. They are not a quote from any lender, and the repayment calculator will give you figures for your own case.
Say you borrow $8,000 over five years, repaying monthly.
| Annual rate | Monthly repayment (approx.) | Interest over 5 years (approx.) | Total repaid (approx.) |
|---|---|---|---|
| 15% | $190 | $3,420 | $11,420 |
| 30% | $259 | $7,530 | $15,530 |
| 50% | $365 | $13,890 | $21,890 |
At 15% and 30%, the contract is outside the high-cost rules. At 50%, the contract is high-cost, so the total cost cap applies. On a plain reading of that cap, total charges could not exceed the $8,000 advanced, which would limit the total repaid to about $16,000. The uncapped maths in the table, $21,890, is what the loan would cost without the cap.
Two lessons come out of this. First, a rate that sounds only a bit higher can double the interest bill. Second, the cap does not make a high-cost loan cheap. A lender can still charge up to the limit, and being allowed to charge double what you borrowed is a lot.
What lenders must check first
All lenders, not only high-cost ones, have duties before they lend. According to Community Law’s manual, a lender must make reasonable enquiries about what you want to borrow, what it is for, and whether you can make the payments without significant financial hardship. That means asking about your income and expenses, and checking evidence if they rely on it.
For high-cost contracts there is a sharper test. If you have failed to make payments under a consumer credit contract in the last 90 days, the lender has to presume you are likely to be unable to repay without hardship. To lend anyway, it needs to be able to show it is more likely than not that you have already paid what was owed, or that you can immediately pay what is owed and still cover essential living costs.
Regulation of the CCCFA moved from the Commerce Commission to the Financial Markets Authority on 1 July 2026. Certified lenders were deemed to hold a market services licence from that date. For you, the practical result is the same: the rules above still apply, and the FMA is now the regulator to know. For the full responsible-lending picture, see our page on the responsible lending code.
Signs a deal may be high-cost
- The advertised price is a weekly or fortnightly figure, with no annual rate or total repayment shown.
- The contract mentions a daily fee, a “service fee” each month, or an escalating default rate.
- You are being asked to take a second loan to clear the first.
- The total you would repay is close to or more than double what you borrow.
- You are told to ignore the disclosure statement because “it’s just a formality”.
- A lender is unwilling to put the full cost in writing before you sign.
If any of those apply, ask for the annual interest rate and the total cost of credit in writing. Our glossary entries on total cost of credit and the comparison rate explain the figures to ask for.
If you are already in a high-cost loan
You have options, and none of them need you to feel ashamed.
- Talk to the lender early. Ask about hardship options such as a longer term, a payment holiday or interest-only payments for a time.
- Get free, independent help. FinCap’s MoneyTalks service gives free financial mentoring. Our page on financial mentors explains how to reach one, and the debt help page lists other free services.
- Check the contract against the caps. A Community Law Centre can give free initial advice on whether the lender has charged more than it was allowed to.
- Complain if rules were broken. The lender’s own process comes first, then the approved dispute resolution scheme it is a member of. Our page on car finance complaints walks through the steps.
- Be careful with a new loan to clear an old one. Rolling a high-cost loan into another often costs more, and the limits on repeat borrowing exist for that reason.
Where Fair Finance fits
Fair Finance is a referral service, not a lender and not a financial adviser, so we cannot give personal advice on whether a loan is high-cost. One application and one soft credit check go to a panel of approved New Zealand lenders, who decide case by case. We are paid by the lender only when a loan settles, and that never changes your rate. If you want to see what a normal car loan could look like, the quick check is the place to start.
Checklist
- Asked for the annual interest rate, not just the weekly payment
- Asked for the total amount to be repaid, in writing
- Checked the default interest and default fee clauses
- Added up fees as well as interest
- Not borrowing a second loan to repay the first
- Read the disclosure statement before signing
- Know your cooling-off window, which is five working days from disclosure
- Know where to complain and who to ring for free advice
General information only, not financial or legal advice. Thresholds, caps and regulators can change, so check the official pages below before relying on a figure.
Sources
Common questions
What is a high-cost consumer credit contract in NZ?
It is a consumer credit contract where the annual interest rate is 50% or more, or where the interest rate plus default interest is likely to reach 50% a year. Community Law says the 50% can come from the annual rate, other fees or default interest. Payday loans are the best-known example, but the test is the price, not the label.
Is there an interest rate cap on car loans in NZ?
There is no single cap on the interest rate of an ordinary car loan. The firm limits sit on high-cost contracts, which are those at 50% a year or more. Below that line, lenders still have to lend responsibly and fees have to be reasonable, but the rate itself is set by the lender and your risk profile.
What is the most a high-cost lender can charge me?
Interest cannot exceed 0.8% a day, and the total cost of borrowing, including fees, interest and charges passed on by the lender, cannot be more than the first amount advanced. On a $500 loan that means you should never repay more than $1,000. Default fees are capped at $30 unless the lender can show a higher fee is not unreasonable.
Can I take out a second high-cost loan to pay the first one?
Not freely. Community Law says you cannot sign a new high-cost contract if you were still repaying one in the last 15 days, or if you have already entered two high-cost contracts in the last 90 days. The rule exists to stop people sliding into a chain of loans.
Where can I complain if a lender breaks these rules?
Start with the lender's own complaints process, then the dispute resolution scheme it belongs to. Consumer Protection lists the four approved schemes, and a Community Law Centre gives free initial advice. The regulator for the Credit Contracts and Consumer Finance Act is the Financial Markets Authority from 1 July 2026.
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