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Loan Funding Accounts

WARNING!!!

Loan funding accounts are accounts that some banks REQUIRE for the purpose of having your loan funds paid into.
Typically they are transactional accounts which can be overdrawn wither with or without your consent.

Do I need a loan funding account

This is an interesting question, one which I have asked a number of banks over a number of years, and the answer is.. unless you have a transactional (loan funding account) we cannot grant you a loan, as we cannot draw the funds from any other account than a loan funding account.
Furthermore many of these organisations have reported that they do not have the technical ability to allow deposits into a loan account directly.

No technical Ability?

Although we are in an age where we can send men to the moon, and fly aeroplanes that can land themselves and take off themselves using computers, and we can make payments to organisations and transfer funds via apps on our smartphones (that have thousands more times the processing power then those early spaceships), the banks that we trust to look after our money dont have the ability to be able to handle a deposit into a bank loan account directly?

If this is the case, I am bit worried about trusting an organisation with my hard earned wages! How about you?

Perhaps there is another reason?

If you are having financial difficulty, who decides whether you can make your loan payment, and who has the ability to overdraw your bank account?
You guessed it, the bank.

So, if you are short this month, due to something (such as taking ill, and being off work without pay), when it comes time for your loan payment, they can and almost certainly will (as I have seen a number of times) overdraw your account to 'honour your loan payment', and then, if the penalty interest wasn't enough for them, they may charge you an 'unarranged overdraft fee', and perhaps an 'honour fee' honoring the payment to themselves.
But dont worry, they may dishonour the payment if you dont pay into the account within a couple of days, and this will incur a dishonour fee as well.

They cant do that! can they?'

If you dont think so, go and check your loan documentation, chances are they can and they will, and even more worrying,is that if you get behind, they will repeat the process every month until you catch up, because for some strange reason they believe that taking more money off you will help you 'make up your deficits'. (we liken this to 'kicking the dog when he's down')

Can We Stop This Behaviour

Individually NO!
But together we can put pressure on organisations that take these type of tactics and say.. No Loan Funding Accounts!
And we can put pressure on the New Zealand Government (who puport themselves to represent the NZ People) to start doing what they were put in place to do.

Summary?

Always look at the loan contract, and review terms like 'loan funding account' and if you see this phrase, shut the door on your way out, because without people saying no, there will always be loan funding accounts.

If every borrower in New Zealand said no, there would be either no loans or there would be no loan funding accounts.