For work, commuting, or family life, reliable transport can make a world of difference. But with car prices so high, paying for one outright isn’t always an option. That’s where car finance comes in. The right loan can help you get behind the wheel sooner, but not all car loans are created equal. Understanding your options could save you thousands over the life of your loan.
Understanding Vehicle Finance Options in NZ
There are several types of car loans available, and the one you choose will affect your interest rate, repayment terms, and overall borrowing costs.
Secured vs. Unsecured Loans
A secured car loan uses the car as collateral, which typically means lower interest rates. However, if you fall behind on payments, the lender has the right to repossess the vehicle.
An unsecured personal loan doesn’t require collateral, but interest rates tend to be higher, and approval criteria can be stricter.
Dealer Finance, Bank Loans and Specialist Providers
Dealer finance is convenient, especially when buying from a dealership, but the interest rates may not always be the best deal.
Bank loans and specialist car finance providers often offer better long-term options with more flexibility in repayment terms. Of these two, specialised asset loan providers are often more flexible to work with as they are solely focused on lending as their primary business.
Balloon Payments & Residual Value Loans
Some lenders offer what's called a "balloon payment" or a residual value loan. This lowers monthly repayments but requires a lump sum payment at the end of the loan period.
Residual value loans are common for new cars, particularly in lease-style agreements, but may not always be cost-effective for second-hand vehicles.
Key Factors That Affect Loan Approval
When applying for car finance, lenders will assess several factors before approving your loan. You can expect a review of your credit history—a higher score can mean better rates. Your deposit size will also factor in. Lenders can lend 100% of the total cost of a new car, but most require a 20% deposit for a used one. A larger deposit will reduce the amount you need to borrow, which also can lead to lower interest rates. A shorter loan term is also worth considering—often meaning higher monthly repayments but lower overall interest costs.
Ready to apply for car financing? Fill out our no-obligation form here and we’ll get things moving.
Hidden Costs and Fees to Watch Out For
When signing up for any type of loan, it’s important to look beyond just the interest rate so you don't get stung later by unexpected fees. Here are some hidden costs that might pop up during your search:
- Loan Establishment Fees: Many lenders charge an upfront fee to get the loan set up in the first place.
- Early Repayment Penalties: Some loans charge a fee if you pay off the loan early, so be sure to check the terms.
- Insurance & Depreciation: If your loan is secured, comprehensive car insurance is usually required. Also, remember that cars lose value over time, which affects resale potential.
A trustworthy lender will be upfront about all costs. If anything isn’t clear, don’t hesitate to ask for clarification.
How to Compare Car Loan Options
Finding the right car loan isn’t just about getting the lowest interest rate—it’s about understanding the full picture. A couple of things you may forget to consider:
- Fixed vs. Variable Interest Rates: Fixed interest rates are just what they sound like, fixed for the length of your term. While variable rates may start lower but can fluctuate over time which adds additional risk you might not be comfortable with.
- Comparison Rate: This is a standardised rate that includes all fees and provides a clearer picture of the loan’s total cost—great for comparing across lenders and loan types.
Conclusion
When it comes to car finance, knowledge is power. By understanding your options, you can approach your search from a firm footing to make a final decision that works best for you and your finances—putting your new car firmly in the "valuable asset" basket—rather than creating a long-term financial burden.
If you want to talk to one of our representatives about which car financing options might work for you, get in touch with our friendly team today.
