How to finance your first car without overspending in New Zealand?

Buying your first car is a major milestone for many young Kiwis. You’ve got some independence, you can get on the road, and you don’t have to rely on anyone else to get you where you need to be. While it’s exciting, it can also be risky. There may be a lot of options to choose from, and you might be tempted to spend more than you initially planned to, to get your dream car.

This guide for first-time car buyers will show you how to finance your first vehicle responsibly while keeping your costs under control.

Before we begin, it’s important to note that in New Zealand, all lenders, including those offering car and personal loans, must operate under responsible lending rules. That means they cannot lend you an amount of money that you cannot afford to repay.

But in some cases, borrowers may not feel comfortable borrowing the full amount they might theoretically be able to afford for their car purchase, or they may know of potential changes to their circumstances in the future that the lender is not privy to. Here’s how to navigate those situations.

Step one: Work out your budget before you go car shopping.

To get an idea of what sort of budget you might have for your car, it’s a great idea to first work out a budget.

This could be a good idea even if you’re a cash buyer, because a new car can come with extra expenses and ongoing costs.

Start by looking at your income, your expenses and the amount of savings you have. Think about what you can afford to pay in repayments on your car loan each month. Do you have expenses that are likely to come up in the future? Do you have any existing loans that you want to clear first? Is your income likely to change over the loan term if you decide to finance your car?

Don’t forget the ongoing costs of car ownership, such as insurance, registration, fuel, warrants of fitness, and the servicing you need to keep your car in top condition. Some people decide it’s worth spending slightly more at the outset to ensure they get a reliable car that may not incur as many future costs.

Step two: Save a deposit

Even if you know you’re going to be looking at car financing for your purchase, it may make sense to save a deposit. It’s not always essential to have a deposit, but some borrowers choose to save a downpayment.

The larger your deposit, the less you will need to borrow for the purchase – assuming you don’t decide to just buy a more expensive car!

There are a few things that might help you save money:

Automating your savings: If you can set up a payment to a savings account from your main bank account on the day you’re paid, it’s more likely to happen.

A side hustle: Any additional income you can earn can help boost your savings. Do you have skills you could monetise, or time you might be able to spend earning some more cash?

Cutting non-essentials: The other side of the equation is your spending. If you can reduce your spending on other discretionary purchases, you’re more likely to have money available to go towards your deposit on your new car.

Step three: Compare car loan options

There may be a few options available to you when it comes to finding the right car finance for you.

Some borrowers choose to go to a bank, while others – particularly if they are buying a new car – might borrow through a dealer.

There are various lenders and car financing experts in the market. At better finance™, we help borrowers find lenders who are a good fit for their financial situation. We can look at what you’re hoping to achieve and work out which lender might be a good fit to get you into the driver’s seat of your own vehicle faster. The simple online application process at better finance™ is easy to follow and likely quicker than you expect.

Step four: Understand loan features

Depending on the type of loan you choose, there might be a few things to get your head around before you borrow for your car loan.

Interest rates

We can help you determine which interest rates might be available. Your interest rate can be fixed or variable – the better finance™ team can help you find a fixed rate that will give you security about what you’ll need to pay for the term of your loan. We’ll also help you understand the total cost of your loan before you draw it down. If you’re taking out a secured loan, where the lender holds an interest in your car as security, you may qualify for lower rates than you would for an unsecured loan, which is riskier for the lender.

Balloon payment financing

This is mostly offered for higher-end new cars. It means that you pay less during the term of your loan but have a large payment at the end. If you’re considering this option, you’ll need a strategy for how you’re going to cope with that final payment.

Fees

We can talk you through the fees likely to be charged on any loan organised through better finance™. There will be establishment fees, and you might also face an early repayment fee if you decide to pay off your loan early. In some cases, there might also be fees if you miss payments.

Add-ons

Some dealers offer add-ons that can increase the cost of your car, such as warranties or other insurance. It’s worth making sure that you understand what you are paying for.

Step five: Avoid overspending on the car itself

Now for the fun part, car shopping!

Try to set a budget before you go. Whether you’re heading to dealers or looking at a private sale, it can be hard, but aim to stick to “needs” rather than “wants”. If it’s your first car, you probably want something reliable and affordable that you know will get you where you need to be. Save the flashy extras for when you have a bit more money to spend down the track.

Step six: Get pre-approval before you shop

It can be a big help to have your loan pre-approved before you go car shopping, so you know exactly what you can spend. At better finance™, we can help you get preapproved for your loan ahead of time. This means you will know your budget for your new car and have strong negotiating power.

The preapproval process is easy. You’ll just need to supply some documents, such as proof of income, your ID (such as your driver’s licence), and submit to a credit check. You’ll usually need to be a New Zealand resident.

Step seven: Think about future-proofing your loan

It’s important to take out a loan that works for you into the future, as well as right now.

Think about things like the right balance between loan term and repayments. A longer loan term can often mean lower repayments, but the loan lasts longer. A shorter loan term will pay off the debt faster, but if your circumstances change during the term, you might need to renegotiate the loan with your lender. Give yourself some room in your budget for unexpected costs, and aim to save an emergency fund if you can.

Tips for first-time borrowers in NZ

Common mistakes first car buyers make

Borrowing the maximum amount offered

The lender will check that it is comfortable you can repay the proposed loan, but only you know how much you feel comfortable servicing – or what changes might be ahead in your life.

Ignoring the total cost of finance

It’s important to consider the total cost of borrowing, including fees and interest. The better finance™ team can help you work this out for any loan you take out with us.

Forgetting about running costs

Buying the car is one thing, but you’ll also need to ensure you have the funds required to keep it on the road.

Getting swept up in the purchase

Car dealers can sometimes have a lot of tempting vehicles on offer, and it might be easy to spend more than you initially planned to. It may help to take someone with you who can help you stay on track.

Ready to get on the road?

If you’re itching to buy your first car – or your next car – we can help. The better finance™ team has an easy, online process that can match you with a finance option that suits your needs.  Get in touch with us today, and we’ll help you get behind the wheel.