New Zealand is a car country. While we certainly have decent public transport, most of us need to own a car to get to work and to make the most of life. And our vehicles need to be reliable, because nobody wants to get stranded on the side of the motorway or out in the countryside where tow trucks cost a small fortune.
However, getting a reliable vehicle generally means spending more than a couple of thousand dollars. So finding suitable vehicle finance is a reality for many people. But before you sign on the dotted line, it pays to understand all the ins and outs of car finance. A little bit of education now could save you a big headache later on.
In this Auto Finance Direct guide to car finance, we’ll give you a quick 101 course to build your basic knowledge. Keep reading to the end, because we’ve summarised it all into 10 tips that everyone needs to know.
A quick introduction to car finance in New Zealand
Whether it’s commuting to work, running errands or embarking on weekend adventures, having access to reliable transportation is crucial. However, the upfront cost of purchasing a vehicle outright can be prohibitive for most people. This is where car finance comes into play.
Car finance allows you to spread the cost of purchasing a vehicle over time, making it more affordable and accessible. Instead of paying the full purchase price upfront, you make regular payments (usually monthly) until the loan is fully repaid. This flexibility enables you to get the car you need without straining your finances.
Understanding car finance options in New Zealand
In New Zealand, there are several car financing options available to you. These include:
- Bank of Mum and Dad: Asking your parents or siblings for a loan might be an option. If you decide to go this way, it’s polite to pay interest and be on time with repayments. Relationships are more important than vehicles!
- Dealership finance: Many car dealerships in New Zealand offer in-house financing options to customers. Dealership finance allows you to purchase a vehicle and arrange financing all at once, often with competitive interest rates and flexible repayment terms.
- Bank loans: Traditional banks offer car loans with fixed interest rates and repayment terms. You can apply for a loan from your bank by giving them a call, visiting a branch or completing an online form (usually after logging into internet banking).
- Online lenders: With the rise of online banking and financial services, numerous online lenders now offer car finance options. These lenders typically provide a quick and convenient application process, making them an attractive option for busy people. Using an online lender is handy if you want to buy a car privately, rather than through a dealer.
- Credit unions: Credit unions, aka financial cooperatives, are member-owned financial cooperatives that offer competitive loan rates and personalised service. Borrowers can often find favourable car finance options through credit unions, especially if they have a good relationship with the institution. You need to be a member of the credit union before you apply for a loan.
Each car finance option has its pros and cons, so it’s essential to research and compare before making a decision. Factors to consider include interest rates, repayment terms, fees and eligibility requirements.
Step-by-step guide to organising vehicle finance
Step 1: Understand your financial position
Before diving into the car finance process, take a moment to assess your financial situation. Calculate your monthly income, expenses and existing debts to determine how much you can comfortably afford to spend on car repayments every month.
Step 2: Identify your down payment amount
While you’re analysing your finances, keep in mind that you’ll need a down payment, aka deposit. You can’t expect to finance the full amount. Some lenders might let you get away with a 10% down payment; others might want as much as 20%.
Step 3: Know your credit score
Step 4: Get your documents together
Most lenders will require certain documentation to process your car finance application. Common documents include proof of income (such as payslips or tax returns), proof of identity (such as a driver licence or passport) and proof of address (such as a utility bill or bank statement with your name and address printed on it). Be sure to have these documents readily available to streamline the application process.
Step 5: Research lenders and compare offers
Once you have a clear understanding of your financial situation and have gathered the necessary documentation, it’s time to research lenders and compare their offers. Look for lenders that offer competitive interest rates, favourable repayment terms and excellent customer service. Consider reaching out to multiple lenders to get quotes. Don’t be afraid to negotiate a better deal – it’s worth a crack!
Step 6: Apply for pre-approval
Before starting your car search, consider applying for pre-approval from your chosen lender. Pre-approval gives you a clear understanding of how much you can borrow and streamlines the purchasing process. It also puts you in a stronger negotiating position when you’re talking numbers with car dealerships.
Step 7: Find the right vehicle
With pre-approval in hand, you can start searching for the perfect vehicle. Consider factors such as make and model, age, mileage, cost to insure and price range. Take your time to research different options and test drive several vehicles before making a decision.
Step 8 Finalise the loan agreement
Once you’ve found the right vehicle and negotiated a price with the seller, it’s time to finalise the loan agreement. Review the terms and conditions carefully, including interest rates, repayment terms and any additional fees. Be sure to ask questions if anything is unclear and seek independent financial advice if needed. Keep an eye out for unusual terms and conditions, like the fitting of a GPS tracking device to your vehicle.
Step 9: Stick to the payment schedule
After signing the loan agreement and driving away in your new vehicle, it’s essential to make payments on time. Set up automatic payments or reminders to ensure you don’t miss any deadlines. Making timely payments will not only help you pay off the loan faster, but also improve your credit score.
What are your rights and responsibilities as a borrower?
Before committing to a loan, it’s important to understand your rights and responsibilities under New Zealand’s Credit Contracts and Consumer Finance Act (CCCFA). This legislation provides consumer protections and sets out specific requirements for lenders when entering into credit contracts with borrowers.
When considering signing a loan contract, there are several things to check and understand:
Explanation of the contract: The lender must explain the contract to you in a clear and understandable manner. This includes outlining the terms and conditions of the loan, as well as any associated fees or charges. Make sure you fully comprehend what you are agreeing to before signing on the dotted line.
Suitability and affordability: It’s essential that the lender assesses whether the loan is suitable for your needs and if you can afford the repayments without facing financial hardship. They should take into account your income, expenses and other financial obligations to ensure the loan is manageable for you.
Disclosure statement: Before signing the loan contract, the lender must provide you with a disclosure statement that outlines the total cost of the loan, including repayments, interest rates, and any additional fees or charges. This statement should be written in plain language that you can understand.
Written loan contract: You are entitled to receive a written copy of the loan contract that accurately reflects the agreed terms and conditions. This document should outline the rights and obligations of both parties, as well as what will happen in the event of default or breach of contract.
Credit insurance and other add-ons: If the loan includes credit insurance, extended warranties or repayment waivers, the lender must provide you with the terms of these additional products. They should also assess whether these add-ons are suitable and affordable for your situation.
Cancellation rights: Under the CCCFA, you have the right to cancel the credit contract at any time if you did not receive a disclosure statement or if it is incorrect, incomplete or illegible. This provides an extra layer of protection for borrowers in case of misinformation or non-compliance by the lender.
When reviewing the disclosure statement and loan contract, pay attention to details such as:
- The total amount owing, including principal, interest and fees
- Payment terms and details, including frequency and method of repayment
- Interest rates and how they are calculated
- Any additional fees or charges, such as establishment fees or early repayment penalties
- Security interests and consequences of default, such as repossession
- Your rights to change terms or cancel the contract
If you have any doubts or questions, don’t hesitate to seek advice from a financial advisor or consumer rights advocate. Remember, compliance with the CCCFA is essential for lenders, and failure to adhere to its requirements can result in penalties or refunds for borrowers.
Are you ready to press the ignition?
If you’re ready to start car hunting, or you’ve already seen a vehicle that would do the trick, Auto Finance Direct is ready to help. You can source our loans through many vehicle dealerships in New Zealand or you can apply directly with us, even if you’re buying privately.
