If you're in the market for a new car, you may be thinking, "should I finance a car or pay cash?" Car finance is a great way to spread the cost of your new vehicle over several months or years.
Knowing what you're getting into before signing that loan agreement is crucial. This car finance advice guide explains five things you need to know before getting car finance in New Zealand.
The first thing you need to consider before anything else is whether you need a car loan. Car finance may be a good-fit if:
If any of this applies to you, and you would like to go ahead and apply for the car loan, the next step is to determine how much you can manage to repay. It is best to jot down a budget that includes your income, expenses, and other costs related to maintaining a new car, such as petrol and servicing.
Also, find out if you can contribute some money as a deposit for the new car. Because you will be paying interest on the new car, the more you can pay as a down payment at the beginning, the less interest you will pay over time.
The second thing you need to be aware of is high interest rates. This is because car loans are considered to be high risk by lenders. However, you can do a few things to help reduce the interest rate. One way is to have a good credit history. Another way is to shop around and compare different lenders before settling on one.
Also, take note of the fees involved in getting a car loan. These can include an application fee, a monthly service fee, and even an early repayment fee if you choose to pay off your loan early. It's important to factor these fees into your overall budget when considering a car loan.
The next step is to do your due diligence about the car financing options. There are various ways you can secure a car loan. But each of these options has its own merits and pitfalls. Below are some of the typical car finance options in New Zealand:
Dealership Finance: this is the most preferred lending option because the finance services used are automotive-centric, have a close relationship with your dealership, and can get your insurance policies or additional offers such as fitted accessories or service plans.
Family Finance: it's always good to talk to your family members. They can help finance your new car so that you can pay them back later. But, if you seek financial support from your family, ensure you reach a reasonable agreement beforehand because these deals may turn sour.
Bank loans: most New Zealand banks offer car or personal loans to help finance car purchases. These loans, just like Dealership finance, feature terms, and conditions. So, do your research well. Check the loan establishment fees, the cost of a separate insurance cover, and early repayment penalties. These factors have a huge impact on the loan.
Credit Cards: Some car buyers use a credit card to pay off their new car at more flexible installments. However, this method requires a high level of discipline when making repayments. It often has higher interest rates than other forms of borrowing. Dealerships will not always accept credit cards as a method of repayment, so check this out first.
Although it may be more expensive in the long run, using a credit card can help some people stay afloat financially. At the same time, they adjust to a new car payment. Making smaller, more frequent payments can avoid opening up a new loan account and incurring even more debt. If buyers are mindful of the potential risks and make their payments on time, using a credit card to finance a new car can be helpful.
Before applying for car finance, you need to determine if you want to lease or buy a car. There are two options:
Credit contract: this is ideal for those who want a regular payment plan with a fixed interest rate. It is the most preferred option and the fastest way to own a car. Once you pay the last payment, ownership will be transferred to you.
Finance lease agreement: A finance lease agreement can be a great option if you need a car for your business. The car is bought by another person and leased to your business. The regular lease amount will be based on the car's total cost minus an agreed value for the vehicle at the end of the term.
Making sure you have all your financial details before you even start shopping for cars will help you make the right decision about which car you want.
To complete a car loan application, you will need the following:
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
Car finance firms work with various processes and terms. Apply for a car loan today with Better. We'll make the process of getting car finance approval simple and fast.