What you need to now about vehicle finance in New Zealand
The purchase of a car in New Zealand can be a hassle-free process if you are well prepared for the task.
You need to find a car which matches your needs and the legal requirements for driving in the country. You need to work towards securing the best price and obtaining the most affordable car finance. If you intend to finance the purchase with an auto loan, you should use this guide to get the best deal.
The key to success is advance planning. If you do everything necessary to obtain an affordable auto loan and you get approved before you go shopping, you will have peace of mind and much higher chances of getting a favourable deal on the car. You can save time and money too.
Improve your creditworthiness
The better your credit record is the highest your chances of approval and lower interest rate will be. You need to request your credit report and go over it carefully. If you identify any errors, you should immediately request to have them fixed. You should also try to deal with past delinquencies which are fixable. If you have several missed payments you should cover them before you apply for an auto loan.
Determine how much you can spend on a car
For starters, you should calculate how much money you are prepared to pay for a new car. You should take into account your monthly income and spending. You should have a budget in mind before you go shopping for a car. You should also determine the size of the deposit which you will pay out of your pocket based on your current savings and future spending plans. Then you need to calculate how much you can afford to pay to the lender every month. This will enable you to determine how much you can afford to borrow.
Be aware of the dangers of dealer finance
You should try to eliminate the emotional element which is quite often present in car purchases. If you fall madly in love with a car which is well over your budget, the dealer may try to offer an auto loan which appears to be perfectly affordable, but can actually cost you quite a lot more money. Dealers use various tricks for the purpose. Often, they extend the term of the loan to make the monthly payments smaller. However, the longer term results in more monthly interest payments and this will make the loan considerably more expensive.
Plan ahead before taking out a car loan
Since cars are assets which tend to lose their value at a considerable pace, you should plan for the future when taking out the auto loan in addition to considering the current situation. You need to decide carefully on the deposit size, the loan value and the term of the auto or personal loan. This will help you to get the best deal.
You may feel more comfortable with placing a smaller deposit now, but this may be a costly mistake. This is because the larger loan amount will lead to higher interest payments and make the total cost of the loan higher. As the value of the vehicle depreciates at a high rate, you may end up owing more on your vehicle than it is actually worth.
Using a car loan calculator online
To find out precisely how much interest you will pay and what portion of the principle you will repay every month, you should use a loan amortisation calculator or a similar tool such as a spreadsheet. The numbers will show you how quickly you will gain equity in your car. Use the calculations and analysis which you make to avoid an upside down auto loan. These are loans which enable you to gain equity in the vehicle at a slower rate than the rate of depreciation of the vehicle. Put the other way round, the car loses value more quickly than the outstanding balance on the loan decreases.
Use car insurance as a savings tool
You may be able to get a lower interest rate on an auto loan in New Zealand if you have life or disability insurance. When setting the interest rate for a particular borrower, the lender will evaluate the risk of non-payment associated with death and disability. When you are covered for such events, the risk for the lender will be lower. Hence, you can get a lower interest rate. It is important to note that even though having car insurance is helpful, it is not mandatory.
Shop around for vehicle loans
It may be easier to obtain an auto loan from a dealer, but it pays off to check the offers of other car lenders such as banks, credit unions and even peer to peer lending platforms. The more offers you compare the more likely you are to find the ideal one for you. You should compare loans based on interest rates, fees, monthly instalments and total loan cost. With comparison shopping, you will get a pretty clear picture about the current auto loan market situation. Use this knowledge as a bargaining tool for getting the best deal.
Opt for flexible car loan repayments
When you take out an auto loan with a flexible repayment structure, you will have the opportunity to pay it off more quickly and to save money. With such a structure, you should be able to make additional payments without being penalised. Make sure that you will not have to pay a penalty fee for early repayment either. Make sure that you understand fully the terms and conditions regarding repayment as in some cases the charges are not explained in a straightforward fashion.