A Beginner’s Guide to Car Finance in NZ

You need to upgrade your old ride to a newer, safer, and more reliable vehicle. Unfortunately, you don't have enough savings to pay for it in one go. However, the good news is you have enough in your long term budget to pay it off over time. 

In New Zealand, there are multiple car financing options to make things a little easier, but is car financing a good choice for you, and do you understand how it works?

This beginner’s guide takes you through the important steps to paying off a car using finance in New Zealand.

How much can you afford?

First, you should determine whether or not a car loan is right for you and you can afford to repay the loan within the agreed period. 

If you have a steady income to keep up with regular payments then car financing might be the right option. 

Here are some factors that make you an excellent fit for car financing:

• You have some, but not all, of the funds to buy a car outright.
• You have a vehicle you can trade in, to contribute to the cost of a new car and want to repay the remainder in managed instalments.
• You can service regular payments comfortably over a 3 to 5 year period.
• You have a good credit history or a suitable co-signer.

Considering this will be a long-term commitment, planning ahead is vital. Remember to add into your budget additional ongoing costs like vehicle maintenance and insurance. They are part of the expenses of owning a vehicle. 

A simple way to know how much you can afford is using a loan repayment calculator. Select the car you are looking at, add in your estimated trade-in and deposit amounts, then adjust the loan term to view what it will cost for the regular repayments. Compare the amount with your income and expenses, and see if car financing is a viable option without going beyond your means. 

As a rule of thumb, don't go for a vehicle you can't afford to repay, either now or through regular instalments.

Research different lenders 

There are numerous ways to finance a car in New Zealand, so before choosing one, weigh up all the pros and cons. 

If you're borrowing money from a dealership, bank or financial institution, research and compare interest rates and terms on a selection of reputable lenders. Be careful when submitting applications to different lenders — while applying for car financing from multiple lenders might appear to be the best move, it could negatively affect your credit score. 

Generally, the preferred borrowing method for a car is dealership finance, this is because the services are automotive-specific. You also develop a solid relationship with the dealer — who can work with you to help you get your application across the line. 

Another bonus is that dealerships can incorporate car insurance policies or other extras, including fitted accessories and service plans. 

Pros of Car Dealership Finance:

• You can complete your car purchase and finance in the same place.
• Car brands, through their dealerships, sometimes run promotional offers such as no deposit or low interest finance which may be lower than other financing options.
• Your car insurance, accessories, and on-road costs can be worked into your finance contract and you will only need to service a single repayment.
• Dealership financing offers flexible loan requirements.
• Reliable payments can boost your credit score.

Cons of Dealership Finance:

• You have to research and compare fees and interest rates between different promotional offers, which can be daunting.
• Limited choices when choosing a financial provider — your dealership will typically have one or two finance companies that they normally utilise.
  
  

Applying for approval 

Once you decide to go with car dealership financing, you must apply for approval. But don't get nervous; the process is relatively straightforward. The dealership will offer you numerous options and help you choose the right one based on your needs. 

Alternatively, you can complete the approval process online through an online finance approval application. This might be your best option if you're looking for a quicker process to fit into your busy schedule. With fewer person-to-person touchpoints, you’re likely to complete the approval in a shorter time. 

You can apply directly from a lender if you want to go private. Some lenders will allow you to submit a pre-approval request but keep in mind that you still need full approval. You’ll also need to decide your repayment periods — weekly, fortnightly, or monthly. 

Generally, online lenders are faster because everything is digitised. However, consider the high-interest rates when choosing an online lender. 

Once approved, you can get onto purchasing your new car!

Think about insurance

Car insurance is not mandatory in New Zealand, however, the lender may decide to make a comprehensive insurance policy a requirement for a loan. It is also good practice to protect your investment in case of an accident as replacing or repairing a car can be very costly.

For that reason, it's always crucial to think about car insurance when seeking car financing. Explore all your options for car insurance in NZ and pick one right for you. Also, ensure your car insurance is ready as soon as you purchase your new vehicle, so you can drive away knowing you’re completely covered in case something unexpected happens. 

Get your documents together 

Documentation is crucial, especially for a huge investment like a car purchase. So, once you know which car you’d like, get all your documents sorted, including your driver's license, financial history and the financial agreement between you and the lender.

You should also go through the documents and understand all the details before signing — make sure to read the credit contract agreement carefully, especially around the fees to manage your loan and if you miss a payment. If you are unsure, get a second opinion with some independent financial advice. Remember to bring your co-signer if needed.

If you've chosen to purchase through a private sale, create a private sale agreement, send a copy to the lender and keep another for your records. Don't forget to take the driver's license and proof of bank account from the seller as well.

Drive away in your new wheels!

If you've clearly understood all the details and requirements of the deal, sign and finalise the process so you can get behind the wheel of your new ride!

Make sure everything is in place, especially the regular payments as agreed by your lender or dealership. You can stay on top of payments with an automatic payment or direct debit.

When it comes to car financing in New Zealand, there are a few important things you need to know for everything to go as smoothly as possible. Determine whether car finance is right for you, and if so, research different lenders and compare their fees and interest rates. Once you have your ideal lender, apply for approval and get organised with insurance, so you can get approval and drive away without a hitch!

If you’re unsure about what kind of car is right for your lifestyle, check out our Guide to Buying a New Car today!