What you need to know to finance a used car purchase

Financing a used car in New Zealand is easy once you know the basics. We’ve laid out what you need to know to get the journey started, including who provides car loans, the ins and outs of security, what to watch out for with interest rates, and the documentation you’ll need to begin your application.

The Basics

If you don’t have enough cash at hand to purchase a used car upfront, then you may need to get some form of loan from a lender.

This might be:
• A personal loan from a bank
• A specialised car loan from a non-bank lender or finance company
• A loan direct from a dealership
• A peer to peer loan

There are lots of ways to finance a car, but all of them are based on the same principle: borrow some cash up front and pay it off in instalments over a period of (usually) 3 to 5 years.

Paying in cash is cheaper, but getting a loan rather than saving can get you behind the wheel faster.

Security

Depending on the lender, you may have the option of an unsecured car loan or a secured car loan.

A secured car loan means that something you own, usually the vehicle you intend to buy, is used as security for the loan. If payments on the loan are stopped, the lender has the right to repossess that security to recover their costs.

An unsecured car loan is the opposite. There’s no security. This means that, unlike a secured car loan, you can sell, give away or modify the vehicle as you like.

However, unsecured car loans usually have a limit on how much you can borrow, and may have higher interest rates as well. Some lenders simply insist on having a secured car loan, so it may be your only option.

Interest rates

When you sign up for a loan you’ll almost always need to pay interest eventually. This is the additional amount you have to pay on top of the initial loan amount (the ‘principal’).

Every lender will have a different interest rate. Generally speaking, the better your previous borrowing history, the more likely you’ll get a better interest rate. If you’ve borrowed money in the past and missed some repayments, for example, your application for a car loan from a bank might be rejected. Other lenders, like non-banks or finance through dealerships, might be more flexible.

The lower your interest rate, generally the less you’ll pay overall on the loan, so it pays to shop around.

What you’ll need to apply

Every financier has different requirements, but you’ll usually need:
• Proof of identity
• Proof of address
• Proof of income
• A full driver’s license
• An amount you want to borrow

Some lenders may ask for more information, but it’s generally not much more than this. A vehicle history is a common additional request. Many lenders have an online application process as well, so feel free to start the process and take a look at what you’ll need before you make your decision.

Summary

Financing a car isn’t hard in New Zealand. There are plenty of lenders with excellent terms on their loans, making buying a used car quick, easy and inexpensive.

Nicholson Auto offers finance through our dealerships, working with a range of providers that allows you to get a car loan fast – sometimes even the same day as you come browsing for a used car!

Speak with one of our team about your finance options and get into your new vehicle faster.