Beginner Guide to
Car Loans
A car loan can be a great way to finance the purchase of a new or used car, and can help you get into a car that you may not have been able to afford otherwise. Lets look at how to get a car loan with the best rates and lowest fees.
What is a car loan ?
In simple terms a car loan is a type of loan that is used to finance the purchase of a car. The loan is typically paid back over a period of time, usually 3 to 5 years. The interest rate on a car loan is usually fixed, which means that your monthly payments will stay the same over the life of the loan.
Car Loans in New Zealand
Car loans are one of the most popular types of loans in New Zealand. They are also one of the most expensive, so it’s important to understand the different types of car loans and how they work before you sign on the dotted line. The first thing you need to know is that there are two main types of car loans: secured and unsecured.
Secured loans are where you use your car as collateral for the loan, which means the lender can repossess your car if you don’t make the payments.
Unsecured loans don’t have this risk, but they usually have higher interest rates.
Next, you need to decide how much money you need to borrow. The amount you can borrow will depend on the value of your car and your income. It’s important to only borrow what you need, as the more you borrow, the more you’ll have to pay back in interest.
Once you know how much you need to borrow, you can start shopping around for the best deal. There are a few things to look for when comparing car loans: – Interest rate: This is probably the most important factor to consider when shopping for a car loan. The lower the interest rate, the less you’ll have to pay back in interest.
- Loan term: This is the length of time you have to repay the loan. The longer the loan term, the more interest you’ll pay, so it’s important to choose a loan term that you’re comfortable with.
- Repayment options: Some car loans will have fixed repayment options, which means you’ll make the same payment each month. Others will have variable repayment options, which means your payments can go up or down depending on interest rates.
- Fees and charges: Some lenders will charge fees for things like application and early repayment, so it’s important to check the small print before you apply for a loan. Once you’ve found a loan that you’re happy with, it’s time to apply. You’ll need to provide some personal and financial information, as well as the details of the car you’re looking to purchase. If you’re approved for the loan, the next step is to
- Sign the contract. This is a legally binding document, so make sure you read it carefully before you sign. Once you’ve signed the contract, the lender will transfer the money to you and you can use it to buy your new car. Paying back your car loan It’s important to make your car loan repayments on time, as missed or late payments can damage your credit rating. Most car loans have a direct debit option, which means the money will be automatically taken from your account each month.
If you’re struggling to make your repayments, contact your lender as soon as possible. They may be able to help you by restructuring your loan or offering a repayment holiday. If you default on your car loan, the lender will likely repossess your car. This means they’ll take back ownership of the car and sell it to repay the loan. This will damage your credit rating and make it harder to get credit in the future.
The bottom line Car loans can be a great way to finance a new car, but it’s important to understand how they work before you apply. Make sure you compare different loan options to find the best deal, and only borrow what you can afford to repay.
The different types of car loans available in New Zealand
There are many different types of car loans available in New Zealand. The most common are personal loans, hire purchase agreements, and dealer finance.
- Personal loans are typically the most expensive option, as they often have high interest rates and fees. However, they can be a good option if you have a good credit history and can afford the repayments.
- Hire purchase agreements are a popular option as they often have lower interest rates than personal loans. However, you will need to make a deposit of at least 10% of the purchase price, and you will not own the car until the loan is repaid in full.
- Dealer finance is a popular option for people who are buying a car from a dealership. The interest rates are often lower than personal loans, and you may be able to negotiate a better price on the car. However, you will need to make a deposit of at least 10% of the purchase price, and you will not own the car until the loan is repaid in full.
Advantages of car loans
Car loans offer a number of advantages for consumers looking to purchase a new or used vehicle.
Don’t have the full amount of money to pay for it upfront: You can buy a car with a loan even if you don’t have the full amount of money to pay for it upfront. This is because when you take out a loan to buy a car, you are only required to pay a small percentage of the car’s total price as a down payment. The rest of the money is then paid back over time through monthly installments. This can be a great option if you need a car but don’t have the full amount of money to pay for it right away. It can also help you get a better interest rate on your loan if you have the money to put down a larger down payment. If you are considering taking out a loan to buy a car, be sure to shop around and compare rates from different lenders. You can also use an online calculator to estimate your monthly payments and see how much you would need to pay each month.
You can get a lower interest rate: If you have a good credit score, you may be able to get a lower interest rate on your car loan. This can save you money over the life of the loan and help you pay it off more quickly. If you have a poor credit score, you may still be able to get a loan but you may have to pay a higher interest rate.
You can get a longer loan term: Another advantage of car loans is that you can often get a longer loan term than you would with other types of loans. This means that you can spread out your payments over a longer period of time and have lower monthly payments. However, it is important to remember that the longer the loan term, the more interest you will pay over the life of the loan.
You can use the car as collateral: If you default on your car loan, the lender can repossess the car. This means that the car is used as collateral for the loan, which gives the lender more security and may allow you to get a lower interest rate.
You can get pre-approved for a loan: If you know how much money you need to borrow and have a good idea of what kind of car you want to buy, you can get pre-approved for a loan. This can save you time and hassle when you are ready to buy the car. It can also help you get a better interest rate because the lender will know that you are a serious buyer.
You can get a loan from a dealer or a bank: There are a few different places you can get a car loan. You can get a loan from a car dealer, a bank, or an online lender. Each option has its own pros and cons, so be sure to compare rates and terms before you decide where to get your loan.
You can get a fixed or variable interest rate: When you get a car loan, you can choose between a fixed or variable interest rate. A fixed interest rate means that your interest rate will not change for the life of the loan. This can be beneficial if interest rates rise during the life of the loan. A variable interest rate means that your interest rate can change over time. This can be beneficial if interest rates go down during the life of the loan.
You can choose the length of the loan: Car loans typically have terms of 36, 48, or 60 months. However, you may be able to choose a different loan term depending on the lender and your financial situation. A longer loan term will mean lower monthly payments, but you will pay more interest over the life of the loan. A shorter loan term will mean higher monthly payments, but you will pay less interest over the life of the loan.
You can get a balloon payment loan: A balloon payment loan is a type of car loan where you make smaller monthly payments for a certain period of time and then one large payment at the end of the loan. This can be beneficial if you want lower monthly payments but can afford to make a large payment at the end of the loan.
You can get an open-ended loan: An open-ended loan is a type of car loan where you can make additional payments without penalty. This can be beneficial if you want to pay off the loan early or if you want the flexibility to make additional payments.
You can get a closed-ended loan: A closed-ended loan is a type of car loan where you cannot make additional payments without penalty. This can be beneficial if you want to know exactly how much you will need to pay each month and do not want the flexibility to make additional payments.
You can get a dealer financing: Dealer financing is a type of car loan that is provided by the car dealer. This can be beneficial if you want to get a loan from a source that is familiar with the car you are buying.
Disadvantages of car loans
There are several Disadvantages of getting a car loan :
Car loans can be expensive to maintain : Car loans can be very expensive and if you’re not careful, you can end up paying a lot of money in interest and fees. this could affect you in the long run and can damage your credit score.
You need to have a good credit score : In order to qualify for a car loan in New Zealand, you need to have a good credit score. This means that if you have any financial problems in the past, it could affect your ability to get a loan.
The interest rates can be high : The interest rates on car loans in New Zealand can be quite high, which means that you could end up paying a lot of money in interest if you’re not careful.
The loan term can be short : The loan term for car loans in New Zealand can be quite short, which means that you could end up having to make repayments quite quickly. This could be a problem if you’re not prepared.
You could end up owing more than the car is worth : If you’re not careful, you could end up owing more money on the loan than the car is actually worth. This could leave you in a difficult financial situation if you ever need to sell the car.
The car could be repossessed : If you fail to make the repayments on your car loan, the lender could repossess the car. This could leave you without a car and in a difficult financial situation.
You may have to pay insurance : When you take out a car loan, you may be required to pay for insurance. This could add to the cost of the loan and make it more expensive.
You may have to pay a deposit : When you take out a car loan, you may be required to pay a deposit. This could mean that you have to pay more money upfront, which could be difficult if you’re on a tight budget.
You may have to pay fees : When you take out a car loan, you may be required to pay fees, such as application fees or early repayment fees. This could add to the cost of the loan and make it more expensive.
The car could break down : If the car you buy with a car loan breaks down, you may have to pay for repairs yourself. This could be expensive and could leave you in a difficult financial situation.
You may not be able to afford the repayments : If you’re not careful, you could end up taking out a car loan that you can’t afford the repayments on. This could leave you in debt and could damage your credit score.
You could have to sell the car : If you can’t afford the repayments on your car loan, you may have to sell the car. This could mean that you lose money on the deal and could leave you in a difficult financial situation.
Things to consider before you apply for a car loan
- What is the interest rate? Interest rates on car loans vary depending on the type of loan, the lender, your credit score, and the current market conditions. It’s important to compare interest rates from different lenders before you decide on a loan
- What are the loan terms? The length of your car loan will affect the monthly payment amount and the total amount of interest you pay over the life of the loan. Shorter loans will have higher monthly payments, but you’ll pay less interest overall. Longer loans will have lower monthly payments, but you’ll pay more interest overall.
- What are the fees? Be sure to ask about any origination fees or prepayment penalties associated with the loan. These fees can add a significant amount to the cost of the loan.
- What is the total cost of the loan? When you’re comparing loans, be sure to compare the total cost of the loan, not just the monthly payment. The total cost of the loan includes the interest charges, origination fees, and any other fees associated with the loan.
- What is the monthly payment? Your monthly payment will be determined by the interest rate, loan term, and total cost of the loan. Be sure to compare monthly payments when you’re comparing loans.
- Can you afford the monthly payment? Be sure to consider your budget when you’re comparing loans. Make sure you can afford the monthly payment before you apply for the loan.
- What is your credit score? Your credit score will affect the interest rate you’re offered on a car loan. If you have a good credit score, you’ll qualify for a lower interest rate. If you have a bad credit score, you’ll qualify for a higher interest rate.
- What is the down payment? The down payment is the amount of money you’ll need to put down when you get the loan. The higher the down payment, the lower the monthly payment.
- Will you be able to pay for maintance cost ? When securing a car loan, it’s important to factor in maintenance costs. Regular upkeep ensures your vehicle runs efficiently and helps avoid costly repairs down the line. Opting for services like Mobile Mechanic can be a cost-effective solution, as they offer the convenience of coming to you, reducing the need for expensive garage visits. This proactive approach to maintenance can help you manage your overall financial obligations more effectively, making it an essential consideration when planning for a car loan.
10 Tips for finding the best car loan deals in New Zealand
Get a pre-approval : It’s always good to have a pre-approval from a lender. This means that you’ll know exactly how much you can borrow and what your repayments will be. It also gives you negotiating power when you’re dealing with dealers.
Shop around : Don’t just take the first loan that’s offered to you. Shop around and compare interest rates, fees and features to find the best deal.
Fixed or variable interest rate? : A fixed interest rate means your repayments will stay the same for the life of the loan. This can be good if you’re on a tight budget. A variable interest rate means your repayments will go up and down with the market. This can be good if you think interest rates will fall.
Consider the fees : When you’re comparing loans, make sure you take into account all the fees and charges. Some lenders charge application fees, monthly fees or early repayment fees.
Think about the term : The term is the length of the loan, and it will affect your repayments. A shorter term means higher repayments but you’ll pay less interest overall. A longer term means lower repayments but you’ll pay more interest overall.
Make extra repayments : If you can afford to, make extra repayments. This will help you pay off your loan faster and save you money in interest. Choose the right features : Some loans come with features like redraw or offset accounts. These can be helpful if you want flexibility with your repayments.
Get expert help : If you’re not sure where to start, seek out expert help. A broker can compare loans on your behalf and find the best deal for your situation.
Be aware of scams : Be careful of scammers who promise to get you a “guaranteed” loan or a loan with “no credit checks”. These are usually scams.
Only borrow what you need : Don’t be tempted to borrow more than you need just because you’re approved for a higher amount. only borrow what you need and you’ll save money in interest.
Make sure you can afford the repayments : Before you take out a loan, make sure you can afford the repayments. Use a loan repayment calculator to work out what your repayments will be.
Keep your repayments under 20% of your income : Experts say that you should keep your loan repayments under 20% of your income. This will help you stay on top of your repayments and avoid financial stress.
Check your credit score : Your credit score will affect the interest rate you’re offered. If you have a good credit score, you’ll get a better interest rate.
Make sure you have a good reason for taking out a loan : Lenders will want to know why you’re taking out a loan. Make sure you have a good reason, such as buying a car or renovating your home.
Shop around for the best interest rate : Interest rates can vary significantly from lender to lender. Make sure you shop around to get the best rate.
Get a loan that suits your needs : There are different types of loans available, so make sure you get one that suits your needs. For example, if you need a loan for a short-term goal, a personal loan might be a better option than a home loan.
Read the fine print : Before you sign any loan contract, make sure you read the fine print. This will help you understand the terms and conditions of the loan.
Make repayments on time : If you want to keep your interest rates down, make sure you always make your repayments on time.
The different repayment options available on car loans in New Zealand
There are a few different repayment options available on car loans in New Zealand. You can choose to make :
Weekly
Fortnightly
Monthly
repayments, and you can also choose to make lump sum repayments if you have extra money available. You can also choose to pay off your loan early if you want to, although there may be some early repayment fees.
Car Loan Companies
The main finance companies for car loans in New Zealand are banks, credit unions, and finance companies. There are many different products and services on offer from each of these lenders, so it is important to compare them in order to find the best deal.
Banks are typically the largest lenders in the market and offer a wide range of products and services. They are also able to offer competitive interest rates and terms.
Credit unions are smaller lenders but often have more flexible products and services.
Finance companies are specialist lenders that offer a range of products and services to meet specific needs. It is important to compare the different products and services on offer from each of the lenders in order to find the best deal for your needs.
You should also consider the interest rates and terms that each lender offers.
These are some of the best car loan lenders in New Zealand.
- Kiwi car Loans: Kiwi Car Loan Company is a New Zealand based car loan provider that offers a range of car loan products to suit a variety of needs and budgets. The company also offers a range of other financial products and services, including car loans, secured loans, personal loans and much more.
- Car Finance2U is a New Zealand-based car finance company that offers a range of car finance options to suit your needs. Whether you’re looking to finance a new or used car, we can help. They offer a range of car finance products, including personal loans, dealer finance, and lease options. They also offer a range of services to help you get the most out of your car finance, including car insurance, car warranty, and car servicing.
- Finance Now is a great option for car loans in New Zealand. They have a wide range of options to suit your needs and budget, and our team of experts are on hand to help you every step of the way. So, whether you’re looking for a new car or just want to refinance your existing loan, Finance Now can help.
Frequently Asked Questions about Car Loans
What is a car loan and how does it work?
A car loan is a financial product that allows you to borrow money specifically to purchase a vehicle. The loan amount is usually paid directly to the car seller, and you repay the borrowed amount plus interest to the lender in monthly installments over a predetermined period, known as the loan term. Loans can be secured (where the car acts as collateral) or unsecured.
What are the requirements to qualify for a car loan?
To qualify for a car loan, you generally need a steady source of income, a good credit score, and a low to moderate debt-to-income ratio. Lenders will assess your financial stability and credit history to determine your eligibility and the loan terms they offer. You might also need to provide proof of insurance and a valid driver’s license.
What different types of car loans are available?
The two primary types of car loans are:
- Secured loans: The vehicle you purchase serves as collateral for the loan. If you default on the loan, the lender has the right to repossess the car.
- Unsecured loans: These do not involve collateral but typically have higher interest rates due to the increased risk to the lender.
How do I choose the right car loan?
To find the best car loan, consider factors like the interest rate, loan term, monthly payments, and any additional fees or charges. Use online calculators to estimate your monthly payments and compare offers from multiple lenders to find the most competitive rates and terms that fit your budget.
- Secured loans: The vehicle you purchase serves as collateral for the loan. If you default on the loan, the lender has the right to repossess the car.
- Unsecured loans: These do not involve collateral but typically have higher interest rates due to the increased risk to the lender.
Can I pay off my car loan early, and are there penalties for doing so?
Yes, you can usually pay off your car loan early to save on interest. However, some lenders charge prepayment penalties to offset the interest they lose. Check your loan agreement for any prepayment clauses, and calculate whether paying off early would be financially beneficial after considering these penalties.
What should I do if I face difficulties making my car loan payments?
If you’re struggling with payments, contact your lender as soon as possible. They might offer solutions like deferring payments, adjusting the payment schedule, or even refinancing the loan. It’s essential to address the issue early to avoid damage to your credit score and potential repossession of your vehicle.
How does car maintenance impact my car loan and vehicle ownership?
Regular maintenance is crucial to keep your vehicle running efficiently and to maintain its value. Neglecting maintenance can lead to higher repair costs and a lower resale value, which can be problematic if you owe more on your loan than the car is worth. Utilizing a mobile mechanic service, like Mobile Mechanics, can be a convenient way to ensure your car is well-maintained without the hassle of taking it to a shop.
What are the advantages and disadvantages of taking a car loan?
Advantages:
- Allows you to purchase a vehicle that you might not be able to afford upfront.
- Can help build your credit score when payments are made on time.
- Fixed monthly payments can help with budgeting.
Disadvantages:
- Interest and fees increase the total cost of owning a car.
- Monthly payments can be a financial burden.
- Risk of repossession if you fail to make payments on a secured loan.
