How much you spend on a car and how much you choose to borrow to pay for that car are decisions that may have a big impact on your future net worth (the difference between what you own and what you owe).
These tips from the web site
www.sorted.org.nz can help you make the decision that is right for you.
Set your budget
Work out how much you can afford to spend on a car before you go out shopping – and don’t forget to include annual running costs, insurance and maintenance in your budget.
Know your options
To find a car loan that doesn’t cost the earth, look at all your finance options before you go near the car yard.
Banks and credit unions offer pre-approved loans which let you know in advance what you can spend. You may also be able to adapt a loan you already have to include finance for your car.
If you’re a homeowner, you may be able to extend your mortgage or tap into your revolving credit loan. But if you do extend your mortgage, it’s a good idea to make additional repayments to get the car-related debt paid off faster.
Finance companies offer a wide range of loans including hire purchase and credit sale agreements sold through dealers. You may be able to apply for loans directly with the finance company. Otherwise you will sign up through the car dealer.
Find the best interest rate
Interest rates on car loans can vary widely so it’s best to shop around.
You may find it easier to get access to cheaper loans if you have an existing relationship with the lender.
Check the fees and charges
There are always fees and charges to pay when you organise a loan and the documents you are given should show these clearly.
By law, lenders must provide you with a ‘disclosure statement’ outlining all the fees and charges, what will happen if you can’t make payments, what interest rate you will be charged and how interest is calculated. Make sure you ask for a copy of the disclosure statement and read it carefully before signing up for a loan.
Take your time
Most of all, take your time to decide. When you’re borrowing money a rushed decision can be costly.
To find out more about car loans and managing debt, visit the Retirement Commission’s free and independent website
www.sorted.org.nz. Sorted is packed with information, tools and calculators to help you manage your money.
