What to do when financing a car is not an option

Buying a new car can be exciting, but it can also be daunting — especially when it’s going to be one of the most expensive assets you’ll ever buy.

Many people may reach a point in life where they’re willing to upgrade their old car to a newer, safer or more reliable car, but they don’t have enough savings to lose $20,000 or more in one go.

In these situations, buying a car on a financial basis is one of the most common avenues people take. Unfortunately, for beginners, the process can seem complicated, worrying or confusing.

We’ve been helping Kiwis get on the road for years, so we’re very familiar with the car financing process. So, we thought we should put together a guide that sheds light on how getting a car loan actually works.


Consider your options

First, you need to decide if a car is right for you. Can you afford to buy a car ? For many, the answer is no – in this case, do you have a steady income that can be used to make regular loan repayments over a period of 1-5 years?

It’s important to realize that while auto financing can help you buy a car out of your price range, it’s also a liability and expense that you’ll have to manage for years to come. By doing a few things beforehand, you can determine if this is right for you.


Determine how much you need

If you’re new to cars, it’s a good idea to outline your finances – otherwise you might fall in love with a car you can’t afford. Your regular income and expenses play an important role in determining the price of your car.

One way to see how much you can afford is to use an amortization calculator like the one on Marac’s website. Plug in an actual amount you think you’ll spend on your car and see what recurring repayments are – based on your income and expenses, can you afford it?

If so, great! You can now find out which financing provider is right for you.


Let’s see some options

Mortgage top-up

Mortgage loans can sometimes be “topped up.” This is the time to extend an existing home loan, thereby freeing up more money. Sometimes the money can be used to buy a car. Benefits Top-ups are added to existing loans, which means you don’t have to worry about additional loans. Low interest rates. Using a mortgage top-up to buy a car means using your mortgage rate, which is usually lower than a car loan with a good payment history. Extend the loan. The loan term can be extended by increasing it, which means paying more interest over the long term.

Credit card

A credit card can be used to purchase products and services like a debit card or cash, but instead of spending money, the cardholder owes the money and must pay it back. With a large enough credit limit, a credit card can be used to purchase a vehicle. Pros: Pre-approved. If someone already has a large enough line of credit to buy a car, they don’t need to apply for a separate loan. Disadvantages Credit card rates are often higher compared to other types of credit cards. Large purchases like a car can generate high interest rates. Seller restrictions. The person selling the car must be able to accept credit cards. This is not an option for private sale.