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24 Sep 2020

Buying a New Car? Here are Your Finance Options

Buying a New Car? Here are Your Finance Options

One of the biggest hurdles for people looking to buy a new car is deciding the best way to pay for it. 

Before you make this big decision, we have put together some information on the different options available to you when it comes to financing your new vehicle. Together with some independent financial advice you can make an informed decision and find the right option for you.

If you have any questions around any of these options, our team is always here to help.

Buying a Car Outright

If you are in a position to, often the best way to buy a new car is to purchase it outright. While the investment at the time might feel like a lot of money, the money you’ll save on finance fees and interest in the long run can make the upfront investment worthwhile.

Before making a decision, always run the numbers through a car finance calculator to get an understanding of how much you’ll be saving in interest.

Pros

  • You’ll own the new car outright and not have to worry about making payment instalments over the next few years, leaving your income free to spend as you please
  • You’ll save money over time on interest accumulated
  • You may be able to negotiate a discount with the dealership

Cons

  • Requires a high level of financial investment from the outset
  • A low interest rate could save you money, especially if you make more money investing the cash elsewhere
  • Committing all your savings in a vehicle may stop you from being able to take advantage of other opportunities like holidays or a deposit for a house

Trading in Your Old Car

Depending on the dealership you’re buying from, you may be able to trade in your used car and receive cash in return to put towards your new car. Typically, the dealership will estimate the value your old car and make you an offer. From there, you’ll be able to pay or finance the difference between the appraisal for your old car and the selling price for the new one.

Pros

  • Trading in your old car is a simple way to reduce the amount you need to finance to purchase your new car
  • It’s a quick and easy process that saves you the time and hassle of listing your car on online auctions and negotiating a sale
  • You can drive into the dealership in your old car and drive out in your new one – easy as that!

Cons

  • Sometimes the price a dealership will offer you might be less than you’d get from a private sale, as a dealership has to factor in other costs such as valet cleaning, repairs, and a margin to on-sell

Dealership Finance

Dealership finance is often the preferred method of borrowing, as the finance services used are usually automotive-specific, have a strong relationship with your dealer (which could help to get your application across the line), and are able to incorporate car insurance policies or extras like a service plan or fitted accessories.

Pros

  • Car brands often run promotional offers through their dealerships which may be lower than other finance options
  • Your car purchase and finance can be completed on the same premises
  • Your car insurance can be worked into dealership financing, meaning you only have to service one simple payment per month, as opposed to multiple payments
  • Some dealerships (through the car manufacturer) offer online pre-approval applications, so you can arrange it all before you go into the dealership
  • The loan requirements, such as payment intervals and how long it takes to pay it off can be flexible to suit your circumstances
  • Making reliable payments could help boost your credit score

Cons

  • It is always important to do you research and compare fees and interest rates between different promotional offers
  • Usually, you’ll be locked into finance with the dealership’s preferred financial service provider which could limit your choices

Family Finance

Asking your family members for help can often be very financially beneficial as you may not have to pay interest on the loan, saving you money in the long run. Depending on the financial situation or relationship, your family may be able to help with some or the whole cost of the car.

Pros

  • You’ll save money on interest and fees 
  • You may be able to negotiate a longer term to pay off your car than a traditional lender would be able to offer, lessening your regular payments
  • You won’t formally have a loan against your credit history, nor will you be subject to a credit check to attain this type of finance

Cons

  • Sometimes reaching a financial agreement with family members can put a strain on a relationship
  • It can get tricky if things turn sour and potentially jeopardise a relationship
  • If an agreement isn’t in writing, you could run into problems further down the track

Bank Loans

Most banks in New Zealand offer personal loans or car loans to help finance a new car. Like dealership finance, these loans come with conditions so make sure to do your research. Typically there are two types of bank loans available, one that is secured against your car and gives the loan provider authority to sell your car should you not make payments, and an unsecured loan which is usually lent at a higher interest rate. In both instances, you’ll own your car outright.

Pros

  • Often banks will compete with one another to offer low interest rates which can work in the favour of the buyer
  • You won’t feel pressure in the car yard as you’ll be able to organise a loan beforehand and negotiate a price like you would with cash

Cons

  • Banks will often have loan establishment fees, early repayment penalties and the cost of a separate insurance policy which can make loans more expensive than they initially seem
  • Your insurance will usually be separate from your loan, meaning multiple payments to juggle
  • Bank loan repayment options do not tend to be as flexible as dealer finance options

Credit Cards

Some dealerships accept credit cards as a method of payment for new cars, and some do not, so check first before considering this option.

Pros

  • You’ll be able to pay your car off in more flexible instalments than a traditional loan
  • You won’t have to open a new loan account if you already have a credit card available to you

Cons

  • This method requires a high level of discipline when it comes to making repayments and without it, you can get trapped in a cycle of debt
  • The interest rate can potentially be much higher than a fixed personal loan or dealership finance

Buying a car is a serious commitment, so make sure you get independent financial advice before choosing which option is the right one for you.

Want help buying a new car?

We’ve put together a comprehensive guide to help you work through the process of buying a new car and make the right decision to suit your budget and lifestyle. You can download your FREE copy below.

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