Are you looking for a new car? There are some excellent car financing options, but with so much to choose from, it's hard to know where to start.
Maybe you're already ahead of the game, or perhaps you checked out a car finance calculator but got overwhelmed with the numbers you saw.
Don't worry. Here we'll cover how to find the best car finance deals, the types of loans you can get and how to calculate affordable spending.
How does it finding a loan work?
Despite what you might hear, you should start looking for a loan before agreeing to buy a car. Having the loan sorted beforehand gives you the chance to secure the best possible price — as if you were paying for the car upfront.
However, one thing to note is that loan applications will likely hurt your credit score. When you apply for a loan, you undergo a credit enquiry, where your credit history is checked before you can secure the loan.
This is a big subject, so look for our blog titled 'What is a credit enquiry' for more information.
What kinds of car finance are there?
There are two main types of vehicle loans - secured and unsecured.
Secured car loans.
A secured loan is where your lender uses the car you buy as security. That means that if you don't make your repayments, they have the right to take your car back off you. However, the benefit of a secured loan is that you'll usually get charged lower interest rates to begin with because there's less risk for the lender.
Unsecured car loans.
Unlike secured loans, you won't have to pledge (promise) your car as security. This also means you don't risk losing your ride if you stop making your loan repayments. But that's no excuse to stop paying your loan back! Your credit score will drop if you do, and you'll have less chance of getting a loan or credit amount in future.
Another thing to be wary of is the interest rate on unsecured loans. Because the lender has more to lose if you default (given they have no security), you'll likely have to pay a higher interest rate to begin with to make up for the additional risk.
You can also lease a car for personal or business use. Under a lease agreement, you won't own the vehicle — instead, you'll make regular lease payments until the deal ends, as though you were renting it.
Once you've reached the end of your agreement, you can either buy the car at a reduced price or give it back to the lender. After that, you take out a new deal for a different vehicle, if you want.
Using a Car Finance Calculator in NZ.
Before you start looking into finance options, you should look into what you can realistically afford to borrow. An online car finance calculator can help you with the maths here.
Start by checking out your bank statements. From there, you can work out how much you can afford each month after you've managed all your bills.
Don't just add up rent and groceries — you need to consider utilities, like power and water, plus anything extra you spend on 'additional costs', such as coffees or a night out. By figuring out your expenses upfront, you lower the chances of defaulting on your loan, which would drop your credit score. You also create a more realistic picture of what you can afford over time.
I need a car now.
If you're in the market for a new car now, you should check out a few things first when you're shopping around for the best deal. Doing the work upfront will save you a lot in the long run.
Do your research.
There are many car finance options on the market, so take the time to compare them all. By compare, we mean look further than the sale price tag — you should also check out the interest rates you'll pay as well. Doing this will allow you to negotiate a better deal with your lender.
Again, we caution against making too many credit enquiries, especially if you don't think your application will likely be approved due to your previous history with credit. You may need to build up your credit score first to be eligible for good loans (more on that topic in another blog).
Consider package deals.
Some banks offer discounts on their interest rates if you use them for other services.
So if you've got a mortgage, credit card, or savings account with a bank, you might want to ask them first if they can offer you a discount on your car loan.
Add up all the costs.
Don't automatically jump on the loan with the lowest interest rates. Other fees add up over time, meaning you could be paying back more money than you bargained for. Make sure you use a car finance calculator for any extra charges and factor in those additional fees.
Suppose you're looking for a car loan; you need to search and apply for loans before you agree to anything (but avoid over-applying, as this hurts your credit score). Don't just take a deal without first figuring out what you can secure as a deposit amount or loan.
Also, you want to think about what you're prepared to negotiate for your car. Do you engage with unsecured or secured loans? Do you enter a lease agreement? Make a decision based on what you can afford and what sort of agreement you're prepared to enter.