What are your options for financing a car in New Zealand?

When paying cash for a car isn’t an option, many Kiwis turn to car loans instead. But it isn’t as simple as just ‘getting a loan’ – there are plenty of choices for vehicle finance, each with their own pros and cons. Here’s the breakdown:

BANK LOANS

All of the major New Zealand banks offer personal loans that can be used for buying cars. However, they also usually have specific lending criteria that not everybody will meet.

Pros

• Personal loans from banks have unsecured options, meaning that a car bought with one can be sold, gifted or scrapped without any additional steps.

Cons

• Strict criteria. If someone has trouble proving consistent income (such as being self-employed) or they have missed repayments in the past, the banks may be less likely to accept an application.

NON-BANK CAR LOANS

Finance companies, credit unions and non-banks are all popular sources of car loans. These entities often provide specialised car-specific loans.

Pros

• Non-banks often service a broader range of customers. Self-employed people or those who have a lower credit score may have a higher likelihood of being accepted by a non-bank compared to a main bank.
• Broader criteria. Non-banks have wider criteria and deal with more borrowers and price accordingly. For the better credit qualified customers, rates can be less than the major banks.

Cons

• Interest rates. Non-banks may use a ‘sliding scale’ of interest rates or have a variety of car loan products at different rates. If someone has poor credit, they may have to pay more in interest.

CAR DEALERSHIP LOANS

Many car dealerships offer car loans from their showrooms. These loans aren’t usually with the dealership themselves, but instead are provided by an associated bank or non-bank lender that the dealership has a relationship with.

Pros

• Loans through dealerships can be applied for as part of the car buying process.
• Special offers. Flexible terms and promotions are offered in conjunction with the car maker and/or dealer.

Cons

• Limited options. Car dealerships may only have relationships with one, two or three lenders. Loan options may be limited.

BROKERS

Car finance brokers don’t provide loans directly. Instead, they find an appropriate car loan on the borrower’s behalf. This will be with a non-bank lender, with the broker using their expert knowledge to find the best deal. They may charge a fee, but this can usually be added to the loan.

Pros

• Rather than going from lender to lender, borrowers only have to work with the broker, who handles the negotiations and paperwork on their behalf.
• Lots of options. Brokers usually know a number of lenders who can provide car loans.

Cons

• Brokers can usually place loans quickly, but in complex or unique situations, it may take more time than expected.

MORTGAGE TOP-UP

Mortgages can sometimes be ‘topped up’. This is when an existing home loan is extended and additional cash released. Sometimes this cash can be used to purchase a vehicle.

Pros

• Top-ups add to an existing loan, meaning that there are no additional loans to worry about.
• Low interest rates. Using a mortgage top up to buy a car means you use your mortgage rates for the loan, typically lower than car loan rates.

Cons

• Top-ups may be limited by how much can be added and you will need to have had the loan for a while with a good payment history.
• Extends the loan. The lifetime of a loan could be increased with a top up, which means that more will be paid in interest in the long run.

CREDIT CARD

Credit cards can be used to purchase products and services in the same way as a debit card or cash, though instead of spending the money, the credit card holder then owes that money and must pay it back. With a large enough credit limit, a credit card could be used to purchase a vehicle.

Pros

• Pre-approved. If someone already has a credit card with a large enough credit limit to purchase a vehicle, they don’t need to apply for a separate loan.

Cons

• Credit card interest rates are usually high compared to other types of credit. On a large purchase like a car, there could be a lot of interest charged.
• Vendor limitation. Whoever is selling the car needs to be able to take credit cards. For a private sale, this wouldn’t be an option.

Decided a non-bank car loan is the right move for you? Discover your options by applying for a car loan through Avanti Finance today.