Your investment is only as secure as the assets it's secured against.
What are the risks?
Quality of security
Your investment is only as secure as the assets it's secured against.
A ‘secured debenture’ may sound reassuring, but finance companies' largest assets are often the amount of their outstanding loans - and these are of uncertain value.
When a finance company lends your money in the car or consumer finance market, the loan (your security) may be used for the purchase of a second-hand appliance or a second-hand car. The borrower is also quite likely paying a high interest rate - we've seen car loans charged an interest rate of 32 percent a year. The question is how many of these borrowers can afford to pay off their loan at this very high interest rate. If they can’t, they become a bad debt for the finance company.
For more information see our article on debt consolidation.
The quality of the finance company's loans is the security for your investment. To find out how you can tell what a industries a finance company invests in, see Read the fine print.
Tip
Be wary of investing in a finance company that specialises in a single industry such as second-hand cars or personal consumer finance. Look for a company operating in a range of industry sectors, so your risk is spread.
Important
Like you, we can't predict the future - which means we can't guarantee the performance of any company or investment. Consumer NZ does not endorse any specific company, scheme or investment. ConsumerSaver is a good starting point - but, before you commit, we strongly suggest you seek independent financial advice. See our full disclaimer.
