The ABC’s of Car Loans. Everything you need to know about car finance now.

If you are looking to buy a car but don’t have the cash saved to buy yourself a car then there are a number of loan options to finance your new car. Typically your options for loans are: bank loans, finTech (Financial Technology non bank loans), car dealerships loans, brokers or using your mortgage or credit card. We’ll take a look at every option and outline the best options for loans and how they work.

What type of loans can I access and which are the best?

Personal bank loans – you can use a normal personal loan from any bank to buy a car. The best thing is you can access unsecured loans from most banks, which means you can sell or trade the car without having to make arrangements with the lender. The main issue with bank loans is they’re harder to get, you’ll need to prove consistent income, so if you’re self employed they’re harder to access. Also if you’ve ever missed any loan repayments it’ll be harder to access bank loans to finance your car. Rates from banks are typically 7-10%.

Bank car loans – banks will also offer specific loans to buy a car, these are usually a bit pricer than personal loans and will be tied to the car purchase. The bank usually purchases the car directly by paying the money to the owner. The rates vary from  10-13%.

FinTech non bank loans – there are a number of non bank finance companies like credit unions and technology companies that are trying to compete with banks to offer loans to people. The best option is a peer to peer lender, which is a lender that lends money from a group of other people hoping to earn returns on the lent out money. The best thing about these lenders is they are more accessible for the self employed or those with worse credit scores. They offer really good rates for those who are more credit worthy, around 6-7% but these loans can go up quickly if you have poor credit.

Car dealership loans – car dealerships often offer loans directly from their show rooms. The loans typically aren’t from the car dealership but from a partner financing company. The upside is you can get special offers or flexible terms connected to the car you’re buying.The main drawbacks are that there aren’t a lot of lenders connected to the car dealership so you won’t have a lot of options. Also many dealers use balloon payment financing which can often require a very high final payments, a deposit and higher interest rates.

Using your mortgage – if you have a mortgage and can extend or top up the amount your borrowing then this can be a great option, as mortgages are by far the lowest rates and won’t require a deposit. The main issue is your bank may not grant you a mortgage extension, and you’ll have needed to have had the loan for a while with a good payment history. The rates would be typical mortgage rates 3-5%.

Using a credit card  –  is always an option and the best thing is if you already have a credit card and a large enough credit limit you can buy the car without applying for a new loan or having a deposit. The major thing with credit cards is the interest is likely to be higher and if you can’t pay back the loan within 1-3 months this wouldn’t be the best option. Typical credit rate range is 9-18%.

What kind of deposit is required for a car loan?

There are a number of lenders in New Zealand that will give you a car loan without any deposit. However the bigger the deposit you can put down the better your finance rate. If you want to access a car dealership loan you’ll usually require a deposit though.

What is the car loan application process?

Typically you’ll need to have a car in mind, you can get pre-approved before having found a car but this isn’t full loan approval. Once you’ve found a car it’s best to vet a number of vendors and find the cheapest vendor based on your circumstances. You’ll initially need to provide to the lender your: 

(i) Date of birth.
(ii) Your marital status.
(iii) Your driver’s license number (you’ll need at least a restricted license to apply for car finance.)
(iv) Your legal address and how long you’ve lived there.
(v) Your living circumstances (ie do you own the home, rent or live with family.)
(vi) If you have a history with a finance company.
(vii) Your employment details, ie are you full time , part time or other.
(viii) Your WINZ certificate of entitlement no.
(ix) The name of your employer
(x) Your occupation
(xi) How long you’ve worked there and your work address.
(xii) Your previous employer and how long you worked there.(xiii) Your average monthly expenses like rent, food, other loans and illustrate you can afford to pay back this loan.
(xiv) Your average net income
(xv) The value of any assets you may have like cars or investments.
(xvi) Your current liabilities like outstanding mortgages, credit card debt, bank loans and overdrafts.
(xvii) Your nearest relative and their details
(xviii) Any details about legal proceedings against you

Often after sending this in you’ll need to provide supporting documentation which is usually payslips or other proof of income, a copy of your license and maybe a rental or ownership document for your property. The more assets and liabilities you have the more documents you’ll need to provide to account for them.

How long is the application process?

After first applying you’ll receive a follow up within a day usually. The entire process can take 1-4 days to get approval depending on how complicated your work history is.

How long can you can you finance a loan?

Typically loans vary from 6 months to 7 years in length.

Is there a minimum age for a loan?

Usually you must be 18 to apply for any kind of car finance.

How does a credit check work?

In New Zealand you can apply to get a free copy of your credit record from Centrix, illion or Equifax however if you need it quickly you need to pay for it. It costs $15 for a basic check and $89.99 for a more comprehensive background check. You can apply directly using the following link.

Final review before making the decision

Getting a car loan can be simple, but before applying it depends on your circumstances. If you have a mortgage it’s most likely you best bet in terms of the lowest interest rate. Otherwise a good second option is a peer to peer lender or third party non bank financier, as they have low rates aren’t as strict as a bank. A personal bank loan is another great option. Be careful with dealership loans or using your credit card as typically these loans can have some of the highest rates.