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How Does Car Finance Work?

28 April 2022

How Does Car Finance Work?

How does car finance work? If you've never applied for car finance before, then you likely don't know where to start. Most people begin by looking at the car they'd like to buy, but that's actually one of the last things you should do. Instead, make sure that you find a lender you're comfortable borrowing from at a good interest rate. Then, once you know how much you can borrow, you can start the search for your dream car. 

How Does Car Finance Work? 

Most car loans are personal loans, meaning that you as an individual are borrowing the money from a lender. You will own the car and be able to drive it right away, but the vehicle is usually held as security against the loan. 

You'll have a repayment schedule where you make payments that cover both the cost of the loan and the interest and any fees you need to pay. 

If you miss any payments or fall behind, the lender can sell the car to make their money back. This is an extremely rare occurrence, though. For most people, they make all of their repayments, and once they pay off the loan, the car is released, and it's all yours. 

Usually, you can choose the time period of the loan. Whether you want to pay off the car in 1 year or 3 years, you can decide this when you apply to borrow the money. 

Choosing A Lender


Banks can be a tricky place to get a loan from. They require a lot of documentation, extremely good credit history, and make you jump through hoops to get car finance. 

If you're self-employed, don't have fantastic credit, have other loans, or are a student, you're unlikely to get a good deal on a bank loan. 


Borrowing from a lender when you want to buy a car is an easy way to go. You can usually apply online, upload your documentation, and off you go! Money lenders are also more flexible about who they approve for car finance - as long as you're not drowning in debt and can realistically afford to repay the loan, then you're likely to get approved. 

From the Dealership

If you have already found a car you love at a local car dealership, getting finance from the same place can save you time. However, you need to be careful with finance from car dealers, as the interest rate is often higher than what you would be charged from a lender or a bank.

Car Finance Top Tips

Get Pre-Approval

Find a lender who offers pre-approval on their loans. That way, you'll know exactly how much you've been approved to borrow, and this gives you a set budget for when you go car shopping. Only look at cars that cost less than your pre-approval amount - this is also a great way to narrow down the type of car you want to buy.

Buying New vs Used

Considering whether you want to buy a new vehicle or a used vehicle? Your budget will most likely determine the answer to this question. There are plenty of quality used cars around, so buying second-hand can be a great choice. Look for one with low mileage and few owners, and hopefully, you can score yourself a deal! 

Buy From A Car Yard

Kiwis love to save money, so they will often turn to online auctions sites when buying a car. However, cars sold by individuals are not guaranteed in any way. Buying from a car yard will save you money in the long run, as most will perform checks on the vehicles to make sure they are working as they should before selling them on. 

Car Resale Value

Do you plan on owning this car for a long time, or do you think you might try to resell it in a few years? If you're planning on trying to sell it, you need to consider what the resale value of the model might be. If you want a car that won't depreciate as much in value, you can definitely rule out buying a brand new car. It's thought that new cars lose as much as 10% of their value as soon as you drive off. However, with a used car, you could potentially sell it for much closer to what you paid for it.

Applying For Car Finance

How does car finance work? The application process is incredibly easy with Stadium Finance. Simply go online and fill out the application from, which just takes a couple of minutes. Our team will review it and get back to you as soon as possible. 

If you get approved, the funds will be deposited in your account shortly. You could be driving off in your new car in just a few days!  

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