Business Loan vs Supplier Instalments: Which Costs Less?
On a single purchase over a few months, instalments usually cost less than a specialist unsecured loan, because the loan's approval fee is charged on day one whatever the term. But an overdraft or bank facility you already have almost always beats both. The honest answer depends on the approval fee and whether you need cash once or continuously.
Flat Fee vs Interest Rate: Comparing Like With Like
These two products are quoted in units that cannot be compared directly, which is why the decision feels harder than it is.
- A flat fee is a single percentage of the whole purchase, fixed when you sign. 6.95% on $24,000 is $1,668, whether you repay early or exactly on schedule.
- An interest rate is charged on the balance still owing, which falls every month as you repay. 17% a year on $24,000 over six months is nowhere near $2,040, because by month five you only owe a fraction of it.
- Fees change the picture completely. Specialist unsecured lenders in New Zealand commonly charge an approval fee of around 3.5% of the loan, and banks around 1% with a minimum. That fee does not shrink with the term, so on a short borrowing it can cost more than the interest.
So the only fair unit is total dollars paid on the same purchase over the same number of months. Everything below uses that.
For context on rates: specialist NZ unsecured lenders advertise from about 15% a year and describe a typical range of roughly 9% to 24% once fees are counted, with established businesses often landing between 15% and 20%. Secured bank lending is cheaper, commonly cited in the 7% to 15% range. Figures from MoneyHub's business loan comparison and Prospa's unsecured lending pages. Your own quote will differ, so use these as a shape rather than a promise.
Worked Example on $24,000
An NZ business buys $24,000 of stock or materials from a supplier. Three ways to pay for it, each costed in total dollars. The loan column assumes 17% a year with a 3.5% approval fee, repaid in equal monthly amounts.
| Over 3 months | Cost |
|---|---|
| Instalments at 3.95% | $948 |
| Unsecured loan: $677 interest plus $840 approval fee | $1,517 |
| Existing overdraft at 12%, average balance $16,000 | $480 |
| Over 6 months | Cost |
|---|---|
| Instalments at 6.95% | $1,668 |
| Unsecured loan: $1,204 interest plus $840 approval fee | $2,044 |
| Existing overdraft at 12%, average balance $14,000 | $840 |
| Over 9 months | Cost |
|---|---|
| Instalments at 9.95% | $2,388 |
| Unsecured loan: $1,734 interest plus $840 approval fee | $2,574 |
| Existing overdraft at 12%, average balance $13,000 | $1,170 |
What this shows. Against a specialist unsecured lender charging a 3.5% approval fee, instalments come out cheaper across all three terms, and the gap is widest on the shortest term where the approval fee has nowhere to amortise. Against a facility you already hold, instalments cost roughly twice as much. That is not a close call, and it is the first thing to check.
What it does not show. A bank term loan with a 1% establishment fee at 13% would cost about $1,160 over six months, which beats instalments. If your bank will write that, take it. Many businesses asking this question have already been told no, which is the real reason the comparison exists.
When a Business Loan Is the Better Choice
- The need is ongoing, not one purchase. If you are short most months, funding invoice after invoice is the wrong shape. A facility you can draw on and repay is cheaper and less administrative.
- You are buying something you will keep. A van, a forklift, plant or fitout is asset finance or a term loan, not a supplier invoice to spread.
- You can get bank pricing. Secured or bank unsecured lending with a small establishment fee beats a flat fee on almost any term.
- You need the money as cash, not as a settled invoice. Wages, rent, tax and contractors cannot be paid by settling a supplier invoice.
- The term is long. The longer you borrow, the more the declining balance works in a loan's favour and the less the approval fee matters.
When Funding One Invoice Is Better
- It is one order, not a pattern. A single large purchase for a specific job or season does not justify taking on a facility you will carry afterwards.
- You want to protect your other lines. Funding the invoice separately leaves your overdraft and trade account limits free for everything else.
- You want the cost known on day one. A flat fee for a fixed term has no rate risk and no surprise if you take the full term.
- Speed and paperwork matter more than the last few hundred dollars. A loan application wants financials, statements and often a director search. Funding one invoice is assessed on that invoice and your business.
- You would otherwise pay late. Against default interest on a wholesaler account, or an account placed on stop mid job, a flat fee is cheap. See what an account on stop means.
What Each One Needs From You
| Unsecured business loan | Instalments on a supplier invoice | |
|---|---|---|
| What is assessed | Your whole business: turnover, trading history, financials | The invoice and your business |
| Documents | Bank statements, financials, sometimes projections | The supplier invoice and your business details |
| Security | No specific asset, but a director's guarantee is common | An agreement covering that invoice |
| What you receive | Cash into your account | Your supplier paid in full |
| Cost structure | Interest on the declining balance, plus an approval fee | A flat fee on the invoice, shown before you confirm |
| Ongoing commitment | For the term of the loan | That schedule only |
How PaidTerms works. You apply with an invoice from your NZ supplier and we review it. If you're approved, PaidTerms pays that supplier in full and you repay in 3, 6 or 9 monthly instalments, with the first paid at the start. Fees start from 3.95% and the fee for your term is shown before you confirm. Your supplier does not need to be signed up with PaidTerms, and overseas suppliers are not supported. It funds a supplier invoice, so it is not a loan, an overdraft or invoice finance. See pricing.
More: how to finance a large supplier invoice in NZ sets six routes side by side, trade credit vs a business loan covers the supplier terms angle, and the Stock Finance guide and Cash Flow guide cover the wider picture. This article is general information, not financial advice, and every illustration here is an example rather than a quote.
Frequently Asked Questions
Is a business loan or supplier instalments cheaper?
On one purchase over three to nine months, instalments usually cost less than a specialist unsecured loan, because that loan's approval fee of around 3.5% is charged whatever the term. An overdraft or bank facility you already hold is cheaper than both, so check that first.
Why can I not just compare the percentages?
Because they measure different things. A flat fee applies to the whole purchase for the whole term. Interest applies only to the balance still owing, which falls as you repay. Convert both into total dollars on the same purchase over the same months.
What does $24,000 of stock cost to fund over six months?
On the illustrations in this article: about $1,668 as instalments at 6.95%, about $2,044 on an unsecured loan at 17% a year with a 3.5% approval fee, and about $840 on an overdraft you already have at 12%. Your own quotes will differ.
Does an unsecured business loan mean no personal exposure?
No. Unsecured means no specific asset is taken as security, but a director's guarantee is common on NZ business lending. Ask whether one is required before you compare costs.
When should I take a loan rather than fund one invoice?
When the shortfall is ongoing rather than a single order, when you are buying something you will keep such as a vehicle or plant, when you need the money as cash for wages or tax, or when your bank will lend at its own pricing.
