But he admitted this morning it may have been oversight not to tell the former Justice Minister that she was not being given the title along with other former ministers.
Mrs Collins was upset to be informed by media yesterday that she had not been granted the title of "Honourable" following her resignation in August.
She stood down after an email emerged which appeared to link her to a blog campaign to undermine Serious Fraud Office boss Adam Feeley.
Mr Key said there was nothing new about the decision not to award her the title while an investigation was ongoing.
"I think it would be very odd of me if I didn't act in that way because I would be subject to criticism that I was either undercutting the inquiry or pre-judging the inquiry."
He said that if he had granted her the Honourable title and then been forced to take it off her after the investigation, "media would be climbing down my throat telling me that I'd pre-judged an inquiry that's taken place".
Mr Key said that "in all probability" Mrs Collins would be granted the title but he was treating the inquiry very seriously.
National Ministers who had been forced to resign in the past had still be granted the title, including Pansy Wong and Richard Worth.
The Prime Minister said it took between 16 and 18 months to decide whether these ministers kept their honorific.
Mr Worth was granted the title after his resignation even though he was never cleared of allegations about sexual impropriety.
Mr Key said this was because Mr Worth resigned over a judgement issue, not a legal issue.
"If their judgement has been poor but they're not convicted of a crime it's a general rule they've been able to keep it."
He had turned down the title for one former minister, Labour's Taito Phillip Field, who was jailed for corruption.
Mrs Collins has publicly criticised Mr Key's decision and the fact she was not told about it by his office.
Asked about her criticism, Mr Key said "that's a matter for her".
But he added: "In hindsight maybe my office should have talked her through the process. If we didn't do that … it's an oversight.
"But in the end the real issue is here is that there's nothing new, it's just the way we handle the process."
By Isaac Davison of the New Zealand Herald
