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Top tips for getting a car loan

11 June 2024

Our top 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 get a car loan and discover our top tips for getting the best loan. 

How does car finance work? 

If you're not sure how to get a car loan, it's pretty simple. You choose which car you want to buy and then apply for a car loan with a finance company. Ultimately, you can drive off in your new car 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 car costs $12,000 and your interest rate is 11.95%, you could pay about $135 per week for two years or around $76 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 car 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 car if you are a high-earner with good credit. The more financially secure you are, the lower the car loan interest rate will also likely be. 

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 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 good 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 car with a pre-approved loan

Before you look for a car to buy, you can apply for pre-approval for your car loan. You'll fill out an application and see how much you can borrow before knowing 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 your car 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 drive the price down with the salesperson. 

Getting pre-approval doesn't mean you must go through with the loan - you can always apply to see how much you could get. That way, you don't have to borrow the money if you don't find your ideal car. 

Our top tips for getting a car loan

1. 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 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 car if yours gets wrecked. 

2. Avoid Overspending 

Before you even start looking at what type of car 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 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.

3. 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 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.

4. Check the Fees

When choosing a 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, worse if you cannot meet your payment requirements. 

5. 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. 

You can increase your regular payments later if the company doesn't charge through the nose for early repayments.

6. Use a Down Payment

Saving up to buy a new car in cash is impossible for many Kiwis. If you have saved up a bit of money 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 interest you will pay on the loan. 

7. Don't Use Your Mortgage 

A common misconception is that it is cheaper to add the cost of your car to your mortgage. You don't need to apply for a separate car loan and can keep paying the same weekly mortgage payments. 

While your mortgage interest rates might seem cheaper, remember that your mortgage loan term 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 for longer.

8. 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 can pay off all the bills and not worry about 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 the paperwork and trekking down 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 car. 

If you'd prefer to talk with someone about your loan options, you can always call us at 0508 588 522 and talk to one of our friendly team members. 

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