Tips for getting a car loan
We all need a way to get from A to B, and many New Zealanders choose to travel by car. Find out how to go about getting a car loan and discover the top tips that will get you the best loan.
How does car finance work?
If you're not sure how to get a car loan, it's actually pretty simple. You just choose which car you would like to buy and then apply for the loan with a finance company. Ultimately, you get to drive off in your new car while paying a minimal amount 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 if you took a two-year loan.
For example, if your car costs $12,000 and your interest rate is 11.95%, you could pay about $135 per week for two years or you could pay around $76 per week for four years. You'll notice that you end up paying more overall if you go with a longer-term loan, as you will be paying interest for longer.
How much can I borrow for a car loan?
The amount you will be able to 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.
If you are a high earner with good credit, you shouldn't have any trouble borrowing enough to purchase a car. The more financially secure you are, the lower the car loan interest rate is likely to be as well.
If you currently don't think you'd get approved for a car loan, you can work on improving your financial situation before applying. Find new ways to earn income, pay off your existing debts, and start paying your bills on time to improve your credit score.
Checking your credit score
Your credit score can significantly impact how much you might be able to borrow to buy your vehicle. You can check your credit score for free in New Zealand, but if you need the information faster, you may have to pay for the report.
People with good credit scores have earned this through paying their bills on time, not having excessive amounts of debt, and generally being reliable with loans and repayments. If you have never had a loan, this is not necessarily a good thing, 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 car with a pre-approved loan
Before you go looking for a car to buy, you can choose to apply for a pre-approval for your car loan. This means that you'll fill out an application and see how much you are allowed to borrow before you even know which car you want to buy.
Buying a car with a pre-approved loan enables you to start the shopping process with more knowledge about how much you will have available to spend and what your car loan interest rate will be.
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 that you have to go through with the loan - you can always apply just to see how much you could get. That way, if you don't find your ideal car, you don't have to borrow the money.
Top tips for getting a car loan
Get Insurance
Before you even purchase your car, make sure that you register for car insurance. If you buy a vehicle with a loan and you 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 a situation like this, get comprehensive insurance so that you can get a new car if yours gets wrecked.
Avoid overspending
Before you even start looking at what type of car you want to buy, decide how much you are willing to spend on a vehicle. Don't get into more debt than you're comfortable with just because you fell in love with a specific car. As mentioned, you could even apply for pre-approval before you go car shopping so you know in advance how much you can spend.
Choose a Finance Company
Many car 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 that people don't like to shop around to get the lowest interest 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 worst case, if you are unable to 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 take to pay it off.
Remember that the faster you pay back 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 will put too much strain on your finances, go for a longer-term.
You can always increase your regular payments later on if the company doesn't charge through the nose for early repayments.
Use a Down Payment
Saving up to buy a new car in cash is not possible for many kiwis. If you have saved up a bit of money to put towards a new car, but not the full 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 amount of 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 car on to your mortgage. This means you don't need to apply for a separate car loan and can keep paying the same weekly mortgage payments.
While mortgage interest rates might seem cheaper, remember that the loan term of your mortgage is far longer than that of a car loan. The length of time means that you will end up paying more for your car than you would have otherwise as you'll pay lower interest but for longer.
Payments to suit you
Schedule your payments to suit you. Pay off your car loan weekly, fortnightly, or monthly, depending on how often you get paid. If you get paid monthly, you don't want to be making 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 car loan
It couldn't be easier to apply for a car loan with Stadium Finance; you can do it all online.
This means no more printing out all of the paperwork and trekking down to the bank. Instead, you can fill out our quick online form. The form just contains a few simple questions about your finances so that we can better understand your situation.
Our team makes a decision on each application in a timely manner if you give us all the information we need, so you should have a response quickly. Once you have your pre-approval, you'll be be able to head out and look for your new car.
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 dialing 0508 588 522.
