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Need a stress-free, low-interest car loan for your next vehicle purchase?
Whether you want to buy a car for personal freedom or to commute to work, purchasing a vehicle can be both an exciting and daunting experience - especially if you're considering a car loan to help finance your purchase.
Here's everything you need to know about car loans, and how to get vehicle finance through a dedicated broker like CarLoan.
What is a car loan?
A car loan - also known as car finance, or vehicle finance - is a personal loan used by an individual to purchase a vehicle. You can apply for a car loan with your bank, at a car dealership, or through a dedicated finance broker.
Just like most personal loans, a lender will loan a specified amount to a borrower, which they will then use to purchase a vehicle. The borrower will agree to repay the loan, plus interest, through weekly, fortnightly, or monthly instalments, until the full loan amount plus interest is repaid.
The amount of money you can borrow for a car loan, the rate of interest applied to your loan, and the frequency of repayments, will be dependent on your personal circumstances and who you choose to apply for a loan with.
To see if you can apply for a car loan, speak to one of the CarLoan brokers today.
Is a car loan different from a personal loan?
A car loan is very similar to a personal loan, with the main exception being that your vehicle can serve as a form of security for your loan amount, therefore your interest rates on a car loan should be lower than a personal loan.
In the unfortunate circumstance that the borrower cannot meet their repayments, this allows the lender to repossess the vehicle and sell it to help recoup their losses.
The amount of money you can borrow and the rate of interest applied to your loan will vary depending on the lender, and the type of vehicle you wish to purchase.
As vehicles depreciate in value from the moment you drive them away, certain lenders - such as banks - will require you to borrow a minimum loan amount to ensure the vehicle you purchase will serve as sufficient collateral.
However, this also means that people without existing assets are able to apply for a loan, as their vehicle will serve as collateral.
Who can apply for a car loan in New Zealand?
Any person living in New Zealand over the age of 18 and currently holding a Learner Licence can apply for a car loan.
Depending on your personal circumstances and credit history, there will be variations on how difficult the process is and how much you can borrow - in general, the younger you are, the more conditions there will be around obtaining a car loan.
Do I qualify for a car loan?
If you're interested in seeing if you can apply for a car loan, the team at Vehicle Loans can conduct a quick-and-easy No Credit Check Pre-Assessment. Simply call 0800 651 480 now and speak to one of our trusted vehicle finance brokers.
If you are not employed, or are receiving a benefit such as Jobseeker Support or Sole Parent Support, you will need to provide evidence of your financials and a list of assets (if applicable) to meet the lender's criteria based on the Responsible Lending code.
Our team can advise on your eligibility for a car loan without needing to apply for a credit check.
What do I need to apply for vehicle finance?
While every application is different, you can apply for a car loan if you are:
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18 years of age or older; and
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A New Zealand citizen or holding a work permit or permanent resident (PR); and
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currently employed or have regular income; and
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holding a minimum of a New Zealand Learner Licence.
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You will also need to provide photo identification and proof of address.
While these are the minimum requirements when applying for a car loan, there are a number of ways you can both increase your chances of receiving finance approval and reduce the amount of interest applied to your car loan.
Can I still apply for a car loan on a Learner Licence?
Yes - although your options will be limited, and you might find yourself paying much greater interest than if you chose to apply on a higher tier of Driver Licence.
To receive approval for a car loan on a Learner's Licence, you will need to be at least 22 years old, currently employed on a permanent basis, and have a clean credit history.
At Vehicle Loans, the lenders we work with are willing to consider applicants on a Learners Licence, though each of them have different criteria for approval.
In general, the best advice is to upgrade your Learner Licence to a Restricted Licence.
Where do I apply for a car loan?
There are a few different ways of applying for a car loan: through your bank, directly at a car dealership, or with a dedicated vehicle finance broker.
Car Dealers
If you visit any car dealership, it's highly likely they'll offer finance alongside their vehicles.
While applying for car finance at a dealership can be convenient for many people - simply choose a car and receive finance through the same person - the fees and interest rates associated with these finance options are often quite the opposite.
This is generally tied to the idea that dealerships are looking to sell their primary product - vehicles - and customer finance is simply the final hurdle to completing that purchase. Due to the commission-driven nature of dealerships and this approach to car finance, it can often mean interest rates that are higher than through your bank or a broker.
While not all car dealerships are the same, it's always advisable to consider your other options. Crucially, submitting to a credit check through a dealership will count toward your overall credit score; if you change your mind or choose not to purchase a vehicle afterward, this can lower your credit score and make future finance increasingly difficult.
Banks
Obtaining vehicle finance through a bank will be the most common source of funding for many car buyers.
In many cases, this comes down to familiarity - many people have been with the same bank their entire lives - and the perception of transparency and security offered by a large financial institution.
The important thing to look for when applying for car finance through a bank is how they plan to structure your repayments. While it may seem like a more convenient option to simply add the additional loan amount to a pre-existing mortgage with the bank, this can translate to unnecessarily high levels of interest repaid over a long period of time.
You'll see many banks offer for you to 'top-up' your current home loan as a way of borrowing the additional money while keeping your interest rates low. If this option isn't available to you, your interest rate could be double - or even triple - those you could receive through a broker or dealership.
Despite the higher rates of interest, it's just as common that your initial fees will be lower, as you will be applying directly with a lender - the bank. For this reason, many people who choose car finance through their bank will look to repay their loan as quickly as possible - always check to make sure the bank allows additional payments that won't incur fees or penalties.
Brokers
Brokers specialise in assessing the personal circumstances of an individual and presenting them with the most suitable option for finance.
Generally, most brokers will work with a small pool of trusted, specialist lenders, and will have an expert understanding of their lending criteria. This translates to a better, and more suitable, deal for the customer than through a dealer or the banks; a broker will work to understand your financial position and advocate on your behalf where other institutions may not.
Better still, brokers are also bound by the Responsible Lending Code, which means you'll get the same level of consumer protection as you would through a dealership, with the freedom of choice offered by a bank.
Ultimately, brokers are impartial and independent - their job is to work with you to find the best available loan, interest rate, and repayment plan - as they only get paid if you choose to work with them.
How can I get the best interest rate on a car loan?
For the majority of people wishing to buy a car through finance, there are three major concerns:
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Can I get the car that I want?
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Can I get a car loan that will cover the cost?
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How do I make sure I pay the lowest amount of interest?
While the first two questions have fairly simple yes-or-no answers, the excitement of choosing a car and being able to drive it away can easily cause you to overlook the fine print: how much interest you'll be paying on your loan.
If you're looking to secure a car loan at a lower rate of interest, one of the easiest ways is to apply for a secured loan - typically these can start as low as 7.95% interest per annum.
The ideal customer is:
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asset-backed - i.e. owns a home; and
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has clean credit history and stable employment; and
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can prove their ability to meet their repayments.
These applications are often auto-approved, meaning you will receive an approval for your car loan instantly.
Can I apply for a car loan if I don't own a home?
If you don't own a home or any considerable assets, you can still apply for a car loan at a slightly higher rate of interest.
In this case, your broker will assess your situation by looking at:
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Your employment history and whether your current position is short-term or long-term employment
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The length of time you have lived at your current address
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Your credit history.
As a broker's job is to secure the best deal possible for the borrower, they will benefit from upfront information and transparency in your application; it's impossible to hide your credit history, but a broker can advocate on your behalf if you can give examples of your current financial stability.
While your rates may not be as low as they would be if you were asset-backed, an individual with a stable credit profile, steady job and stable living situation could qualify for rates starting around 10%.
How long does it take to approve a car loan?
An approval for a car loan through a broker typically takes only a couple of hours, while an application with a bank can take a couple of days.
This is mostly due to the paperwork process of applying for a loan through a bank, which may require multiple people to approve an application, as opposed to specific motor vehicle lenders.
Once our brokers at Vehicle Loans have all the required information from you, we can typically have an approval completed within an hour.
Can I apply for a car loan if I have bad credit?
We've all made mistakes in the past, and your credit history is no different. If you can prove that you have taken steps toward greater financial responsibility and security, applying for a car loan and getting approved shouldn't be a problem.
Vehicle Loans have a number of lenders that will look past previous credit issues. To help you get back on track, our brokers will assess your individual situation with a No Credit Check Pre Assessment.
Will applying for a car loan change my credit rating?
A little-known fact for anyone inexperienced in finance is that any credit check application will slowly drop your credit score.
For example, Jane has just moved back to New Zealand from Australia.
Although Jane has a good credit history, she doesn't have enough money to immediately cover all of her set-up costs.
Consequently, Jane applies for a credit card, signs up to an electricity and broadband Internet account, visits her local furniture store and decides to put a number of items on Afterpay, then calls her bank to apply for a car loan.
Without meaning to, Jane's credit history now has four inquiries in just as many days, which temporarily lowered her credit score and subsequently causes her car loan application to be declined or is told she must pay a higher rate of interest.
Is this fair? Absolutely not. Unfortunately, due to the approval process of some lenders and banks, the individual and their current situation is often overlooked for the sake of a credit score.
In this instance, working with a broker means you have someone on your side who can advocate on your behalf with lenders.
This is also why the brokers at Vehicle Loans offer a quick-and-easy No Credit Check Pre-Assessment, to ensure you can get the advice you need without any risk to your credit score.
Can I get a car loan with a broker and purchase a car from a dealership?
Absolutely!
In this instance, we'll notify the dealer that your finance has been approved and request the required paperwork from the, i.e vehicle offer and sale agreement and Consumer Information Notice.
We'll then send the finance agreement to you, with specific instructions on what you have to do. Once you return the paperwork to our team, we submit it to the finance company for settlement, and inform the dealership that you're approved to pick up the vehicle - easy!
What happens if I can't find a car or change my mind once approval has been granted?
If you opt for a car loan through a dealership, your loan approval will be specific to that dealership alone. It doesn't matter if you change your mind, or if the deal on that particular car falls through - if you obtain car finance through a dealership, you cannot use it anywhere else.
As a result, if you then went to another dealership and decided to repeat that process, it will subsequently add another credit inquiry on your credit file - leading to further reduction of your credit score and potentially impacting future decisions from lenders.
If you obtain car finance through Vehicle Loans, our brokers will conduct one set of inquiries and get you approved. Once you've gained approval for your car loan, you have a set amount of time to purchase a vehicle - whether it be at a dealership, through a private sale, on TradeMe, or at auction.
We feel this gives you the necessary freedom to make the choice you want, and aren't tied down to a specific dealership or selection of cars.
Once I am approved for a car loan, how long is the finance available?
Once our team have your finance approved, most lenders will allow an approval window of between 15 - 20 days.
This is to ensure that borrowers have some flexibility in their choice of purchase, and so they can carry out all necessary vehicle checks before committing to a vehicle.
Can I apply for a car loan for a private vehicle sale?
Absolutely. In fact, your broker will offer a greater level of personal assistance in a private sale than you might receive from your bank or a car dealer.
For private vehicle sales - if you find a car that you want to buy on TradeMe, for example - then the brokers at Vehicle Loans can perform the checks on the vehicle to ensure the vehicle is free of finance and not been reported as stolen, generate a private sale agreement, then present this to the purchaser and the seller to sign.
Once we've touched base with the seller, we can let them know we have your finance approved, we'll send them some paperwork to sign, and then we'll go through the process of sending the finance agreement out to you for completion.
As your broker, we will pay funds directly to the seller. Our payments go in overnight, which means once approval has been finalised, all funds will be in the seller's account the following day and you can pick up your new car.
What protection is available for my vehicle and car loan through a broker?
As brokers, it's our duty to ensure you're protected both in your loan repayments and in your purchase. When applying for a car loan, we'll offer additional protection suitable for your vehicle:
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Mechanical warranty with Mechanical Breakdown Insurance - Mechanical Breakdown Insurance covers the cost of repairing mechanical or electrical parts as a result of a sudden and unforeseen failure and breakdown that occurs during normal use in New Zealand.
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Guaranteed asset protection - Guaranteed Asset Protection Insurance protects you against losses that may occur when your vehicle is declared a total loss, and as a result the total loss settlement amount paid by your vehicle insurer is less than the outstanding amount you owe to your financier for your vehicle loan.
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Payment protection - Payment Protection Insurance protects your loan repayments if you suffer an insured event - such as redundancy, severe illness, or disability.
When you express interest in purchasing a vehicle and applying for car finance through Vehicle Loans, our brokers will discuss the most suitable options available to you.
Do I only need add-on protection for high-value vehicles?
Each add-on to your car loan will have additional costs associated with it. As it often doesn't make sense to apply unnecessary add-ons to low-value vehicles, our brokers take into account the loan-to-value ratio of your purchase to ensure you get the protection you need without doubling your repayments.
However, even with lower loans, our brokers will still advise on vehicle-specific protection where necessary.
For example, if you're purchasing a $5,000 car, it's unlikely that you'll want to get all three add-ons, as doing so may nearly double your loan amount.
On the flip side, if your chosen vehicle is over 10 years old, it may be wise to consider a warranty for the vehicle, as older vehicles are more susceptible to mechanical issues.
Our brokers will also consider your unique financial situation and the affordability of any potential repairs; if you don't have additional finance set aside to cover any mechanical faults, opting for coverage and applying for a slightly higher car loan amount could be crucial.
Do I have to pay anything to apply for vehicle finance?
There is no fee to apply for finance.
Lenders and insurers pay Vehicle Loans a fee, commission or brokerage fee for processing the application and settlement of a finance agreement. Any fees that are charged by the financiers are fully disclosed and agreed with you before the loan documents are signed by you.
Vehicle Loans operates under the Credit Contracts and Consumer Finance Act (CCCFA) and all finance arrangements provided by Vehicle Loans are compliant with this Act and follow the guidelines under the Responsible Lending Code advised by the Ministry of Consumer Affairs.