How to finance a car, or what is the best way to finance a car? It is common for this question to come to the mind of consumers who want to buy a car but cannot pay cash. Therefore, one solution is to finance a car.
Every day, consumers are financing a new car, or else financing a used car. This depends a lot on what that person wants and also on their financial conditions. Usually buying a used car can be a cheaper option. However, financing a new car may have lower interest rates.
You have to pay attention to the possibilities to decide what is best. Financing your own car? Or finance a dealership car? This will depend a lot on numerous factors and varies from consumer to consumer. Throughout this article, we will discuss the best forms of financing and the entire step-by-step process of how to finance a car in New Zealand.
Difference between car finance and car loan
Many people do not even imagine, but there is a difference between financing a car and a car loan. Although the two types of credit seem very different, they do have their differences.
Car loan
When the consumer is opting for a car loan, he is turning to a bank, which in turn has agreed to lend the consumer the money to buy a new car. Usually, car loans are offered by banks.
Car finance
Car finance is typically offered by non-bank lenders; They are: financial institutions or car dealerships.
Types of New Zealand Car Loans
The current financial market offers a variety of car loans, and for this reason it is very important to do market research in order not to fall into traps and pay such high interest rates. Car loans can be divided into two main groups, which are unsecured and secured.
Secured loan
This is a loan in which the purchased car, whether new or used, is a guarantee that the buyer will pay all the loan installments. In other words, if the consumer goes through a period of financial turmoil and is unable to pay the installments, the institution that made the loan can request ownership of the vehicle, and the buyer loses everything that was paid. However, in this option, the consumer will be able to find more attractive interest rates, due to the security offered to creditors.
Unsecured loan
In this modality, the creditor does not require any type of guarantee. It only takes into account your income and your credit score history. However, this is one of the options where interest rates are higher, which makes it even more expensive to take out the loan to buy the car. Interest rates are higher due to the fact that institutions are left without guarantees that the installment will actually be settled. Therefore, as they assume greater risks, they end up charging higher interest rates.
Vehicle finance with trade-in option
If you have a used car, at the time of purchase, you can benefit from the exchange option. Some dealerships run promotions and accept the used car as part of the payment for the new vehicle the consumer is purchasing. In some promotions, it is possible to find an offer with a lower interest rate than what is charged in the conventional way.
Vehicle finance with balloon payment
In this type of purchase, the customer pays a smaller monthly installment. However, at the end of the contract, you need to pay a very high amount in one go to settle your purchase. Balloon loans can be a good option for those who want to finance their car at the end of the loan period.
How to get car finance in New Zealand
Getting car finance in New Zealand is not as complicated as some people think it is. Of course, there are some bureaucracies, but it’s nothing that causes so much difficulty. But before you go after a car loan, you need to determine a few things.
What are your options
The first thing to do is to find out if getting a car loan will really be the right choice to make. If the consumer has a stable monthly income, the loan may be an option. The repayment time for a loan can vary from 1 to 10 years. Vehicle financing helps consumers achieve a dream, but this must be done responsibly.
Determine how much funding you really need
Not because you have financing available, that you really need to finance 100% of the value of the vehicle. The lower the financed amount, the lower the loan costs. Another important factor is to be aware of your regular expenses and determine how much you really have left over to commit to financing, without this causing you a financial imbalance.
Consider making a reserve that represents 15 to 20% of the financing amount, so that you can make a down payment and thus reduce the amount that will be paid monthly without causing complications during the financing of the vehicle.
Compare price via a search
The ideal is not to sign a contract with the first financial institution that comes along. Each one has its rules, and therefore the interest rate can be different from one to another. It is worth remembering that the higher the interest rate, the more expensive your vehicle financing will be.
Vehicles purchased through dealers may have a higher rate, as this dealer may partner with a preferred finance company that charges higher interest rates.
Simulation: Finance a car
A popular car in New Zealand costs an average of $48,000. If the customer opts for a seven-year-long loan, he will be able to pay very small monthly installments. Taking into account the current interest rate, which averages 12.90% per year, the monthly amount paid will be $871. At the end of the 84 months, the consumer will have paid a total of $71,066.
This simulation is merely illustrative, the monthly amount to be paid, and the final amount may vary according to the interest rate applied by the creditor who grants the loan to the consumer.
Requirements to finance a car
There are certain requirements for getting a car loan. You must be at least 18 years old. Have a regular monthly income. Be a New Zealand citizen, permanent resident, or non-resident, in which case you must have more than one year left on your work visa. Proof of your identity and income is required.
Organize the documentation
Have you found the perfect car yet? The time has come to organize all the paperwork and apply for approval of the car loan or financing. Even those consumers who are already pre-approved for a loan needed to provide documentation to the lender for their pre-approval to be converted to unconditional approval.
The documents that are usually requested are an ID valid throughout New Zealand, proof of income for the last month, proof of residence with a maximum of three months of issue.
Signing the contract
Carefully read the contract to avoid unpleasant surprises in the future. When checking that everything is right, just sign the contract and make your dream come true.