Vehicle Finance Tips
New year, new vehicle? At this time of year, many Kiwis purchase a new car, ute or van. Find out how to get a vehicle loan and the top tips for getting the best loan.
How does vehicle finance work?
If you're unsure how to get a loan for a vehicle in 2024, it is pretty simple. You choose which vehicle you want to buy and then apply for a loan with a finance company. Ultimately, you get to drive off in your new vehicle while paying minimal upfront.
When you sign up, you will get to choose your loan term, which will determine how much you pay off each week. If you take out a four-year loan, for example, you will pay less per week than a two-year loan.
For example, if your vehicle costs $12,000 and your interest rate is 12.95%, you could pay about $137 per week for two years or around $77 per week for four years. You'll notice that you pay more overall with a longer-term loan, as you will pay interest for longer.
How much can I borrow for a vehicle loan?
The amount you can borrow to buy your car depends on many factors. Most finance companies will take the following considerations into account:
- Your income
- Other debts
- Security against the loan
- Assets
- Job security
- Credit score
The more income you have coming in and the better your credit score is, the more you are likely to be approved to borrow.
You shouldn't have trouble borrowing enough to purchase a vehicle if you are a high-earner with good credit. The more financially secure you are, the lower the vehicle loan interest rate is likely to be.
If you currently don't think you'd get approved for a vehicle loan, you can work on improving your financial situation before applying. Find new ways to earn income, pay off your debts, and pay your bills on time to improve your credit score.
Checking your credit score
Your credit score can significantly impact how much you can borrow to buy your vehicle. In New Zealand, you can check your credit score for free, but you may have to pay for the report if you need the information faster.
People with good credit scores have earned this by paying their bills on time, not having excessive debt, and generally being reliable with loans and repayments. This is not necessarily a good thing if you have never had a loan, as you have no history of paying back loans. Therefore, having no credit score can also affect your ability to get a loan.
Buying a vehicle with a pre-approved loan
Before you look for a vehicle to buy, you can apply for a pre-approval for your vehicle loan. You'll fill out an application and see how much you can borrow before knowing which vehicle you want to buy.
Buying a vehicle with a pre-approved loan lets you start the shopping process with more knowledge about how much you can spend and your vehicle loan interest rate.
Having a set amount for what you can spend can give you some leverage when buying from a dealership, as you will have a non-negotiable limit. This could help to drive the price down with the salesperson.
Getting pre-approval doesn't mean you have to go through with the loan - you can apply just to see how much you could get. That way, you don't have to borrow the money if you don't find your ideal vehicle.
Top tips for getting vehicle finance
Get Insurance
Before you even purchase your vehicle, make sure that you register for vehicle insurance. If you buy a vehicle with a loan and crash it, you will still have to pay off the loan. Even if it gets sent to the wreckers and you don't have it anymore, unfortunately, you will still have to make your repayments. To avoid this situation, get comprehensive insurance to get a new vehicle if yours gets wrecked.
Avoid overspending
Before you even start looking at what type of vehicle you want, decide how much you will spend on a vehicle. Don't get into more debt than you're comfortable with just because you fell in love with a specific vehicle. As mentioned, you could even apply for pre-approval before you go vehicle shopping so you know in advance how much you can spend.
Choose a Finance company
Many vehicle dealerships offer finance, but the interest rate is usually much higher than you could get when you borrow from a specialist finance company. The dealerships know people don't like to shop around for the lowest rate, so they often charge more. If you take the time to compare the loans you could get, you'll find that it's a finance company that usually comes out on top.
Check the fees
When choosing which finance company you want to go with, always check out their list of fees. Some popular finance companies have "monthly maintenance fees", which can easily be overlooked and can soon start adding up. It's always good to know what you're in for if you choose to pay off your loan early or, in the worst case if you cannot meet your payment requirements.
Choose the loan term
One of the most crucial decisions you will make when applying for a loan is how long you want to pay it off.
Remember that the faster you repay the loan, the less interest you will pay in total across the life of the loan. If you can afford to pay it off in two years, it's best to do so. However, if this puts too much strain on your finances, go for a longer term.
Use a Down Payment
Saving up to buy a new vehicle in cash is impossible for many Kiwis. If you have some money saved but not the total amount, you can get a loan for part of the cost and use your savings as a down payment.
This will lower the amount you need to borrow and lessen the interest you will pay on the loan.
Don't Use Your Mortgage
A common misconception is that it is cheaper to add the cost of your vehicle to your mortgage. You don't need to apply for a separate vehicle loan and can keep paying the duplicate weekly mortgage payments.
While mortgage interest rates might seem cheaper, remember that your mortgage loan term is far longer than that of a vehicle loan. The length of time means that you will end up paying more for your vehicle than you would have otherwise, as you'll pay lower interest for longer.
Payments to suit you
Schedule your payments to suit you. Depending on how often you get paid, pay off your vehicle loan weekly, fortnightly, or monthly. If you get paid monthly, you don't want to make a loan payment every week.
Most people like to make their loan repayments just after payday so that they get all the bills out of the way and don't have to worry about paying anything else until the next payday.
How to apply for a vehicle loan
It couldn't be easier to apply for a vehicle loan with Stadium Finance; you can do it all online.
This means you won't have to print all the paperwork and trek to the bank. Instead, you can fill out our quick online form. The form contains a few simple questions about your finances so that we can better understand your situation.
Our team decides on each application promptly if you give us all the information we need, so you should have a response quickly. Once you have your pre-approval, you can look for your new vehicle.
If you'd prefer to chat with someone about your loan options, you can always give us a call and talk to one of our friendly team members by dialling 0508 588 522.
