If you're in the market to buy a new or used car then you'll certainly be spoilt for choice when it comes to finding a car loan to go with your brand new ride.
From AA Finance who are seen as the go to guys for all things motor vehicle related and the large banks who offer competitive interest rates to the privately owned dealerships and online lenders who offer alternative solutions - wherever go you'll be able to find a lender willing to work with your set of needs and circumstances with a smile.
While car loans are usually grouped into their own category they are essentially a personal loan that is designed to cover the costs of buying a car. This is why some lenders may have a specific loan category for vehicle loans while others will only list personal loans - which are large enough to cover the cost of buying a used or new motor vehicle.
Where is the Best Place to get a Car Loan?
One of the golden rules of buying a new car is to walk into the dealership with finance already secured. This is because dealers will likely offer you packages that seem great but will end up costing you more than you really need to be paying and going in with a pre-approval means you know exactly the price range you're going for and will give you the confidence boost to do a little bit of negotiating.
The first place that most people should look for a car loan is with their local credit union. If you are buying a spanking new car then you may want to consider the offer made by the car maker as this may very well be one of the cheapest options you'll find. If you're not a member of a credit union than your bank is the next best place to look followed by the AA - who will likely do their best to beat the bank's offer.
Other options include applying for a peer-to-peer loan which carries significantly lower rates than other alternative and traditional lenders and then finally, the many privately owned vehicle finance companies.
How to Compare Car Loans
When it comes to vehicle finance chances are it's only second to the purchase of your home in scale and therefore warrants a good shop around. You should never simply accept the first offer that comes you way but, rather get a minimum of three before deciding.
Even if you have bad credit or a lack of credit history you will likely find that different lenders will make completely different offers and it will be more than worth your while to compare these and choose the best option. Although many people focus solely on the interest rate they're being offered, one of the most important things that you need to consider is the loan term.
Typically you should be able to pay off your car in 5 years - any longer than this means not only are you paying more in interest but the sheer depreciation that the vehicle will have incurred by the time you pay it off means you've just bought a car that is worth a quarter of what you paid for it.
Securing Finance before Finding a Car
If you already have a car and are looking to trade it in one of your first goals should be to figure out how much it's worth independent of your local dealership. This will allow you to get a good price on your vehicle and accurately calculate how much finance you're looking for. Once you have the estimate you can then work on you budget and see how much you can afford in fortnightly, weekly or monthly repayments and decided what your budget is.
There are many online loan calculators which can help you determine exactly what a loan will cost you, how much you can afford to borrow, what your monthly repayments will look like and what the shortest loan term is that you can afford. Once you have these figures in hand you can then begin researching lenders and car loan providers so that you can secure the very important pre-approval.
Many people opt to buy their cars by refinancing their homes and basically adding the car loan onto their home loan however, you must remember that even though you will be paying half the interest you would have with a regular car loan - you will be paying this interest for 3, 4 or 5 times longer which means that you are, in the end, paying more.
Top Reasons to Secure Finance First
- Have an exact budget so you know what you're looking for
- Better bargaining power at the car dealership
- Ensure the purchase goes through without a hiccup
Car Finance vs. Car Leasing
Finance is perhaps the most popular and the best type of car finance there is - you essentially own the car from the word go and simply make the required repayments to the car finance company, bank, credit union or other lender until it is paid off completely.
You are free to do as you wish with your car from the start and you don’t have to worry about mileage or wear and tear. The other type of vehicle finance available in New Zealand is the lease type which allows you to trade the vehicle in or buy it outright at the end of the lease period but, you do not own the vehicle at any point and are subject to mileage restrictions and wear and tear penalties.
This type of loan is by far less common but is advantageous for those who like to upgrade their vehicles very often and those who want to secure low monthly repayments. This type of loan is less common and is mainly offered by dealers.
In conclusion, always get pre-approved for finance before going out looking for a car, opt for the shortest loan term you can afford, compare multiple lenders and multiple offers before making a decision and never buy a car that you can't afford!