Introduction to Car Finance:
Purchasing a car is a significant financial decision, and many individuals in New Zealand turn to car finance options to make it more affordable. Car finance provides an opportunity to spread the cost of the vehicle over a period, making it accessible to a broader range of people. In this article, we will explore the pros and cons of car finance in New Zealand. We will also highlight the benefits of using car finance compared to traditional loans.
Pros of Car Finance:
Affordability:
Car finance allows you to spread the cost of the vehicle over a period, making it more affordable compared to paying a lump sum upfront. This can help individuals manage their finances more effectively and avoid financial strain.
Flexibility:
Car finance options come in various forms, such as hire purchase (HP) and personal contract purchase (PCP). These options offer flexibility in terms of repayment terms, deposit amount, and balloon payments, allowing borrowers to tailor the loan to their specific financial situation.
Accessibility:
Car finance is often more accessible than traditional loans, as it is designed specifically for vehicle purchases. Lenders offering car finance may be more willing to approve applications from individuals with a limited credit history or those who have had credit issues in the past.
Potential for better cars:
Car finance provides an opportunity to choose a better car than what you might be able to afford upfront. By spreading the cost over time, you can opt for a higher-spec model or a newer vehicle that might otherwise be out of your budget.
Warranty and maintenance coverage:
Some car finance agreements include warranties or maintenance packages, providing added peace of mind and potentially saving money on repairs and servicing costs.
Cons of Car Finance:
Interest charges:
Car finance agreements typically involve interest charges, increasing the overall cost of the vehicle. Borrowers need to consider the total amount repaid, including interest, over the term of the loan.
Depreciation:
Cars generally depreciate in value over time. If the finance term is longer than the car's expected useful life, borrowers may end up owing more than the car is worth at the end of the agreement.
Limited ownership rights:
Until the finance agreement is fully repaid, the lender retains ownership rights over the vehicle. This means borrowers may face restrictions on modifications, selling, or transferring ownership of the car.
Early repayment penalties:
Some car finance agreements may include penalties for early repayment or settlement, limiting flexibility if you wish to pay off the loan before the agreed term.
Potential negative equity:
If the value of the car depreciates faster than the loan is being paid off, borrowers may find themselves in a negative equity situation. This means owing more on the loan than the car is worth, which can pose challenges if you decide to sell or trade in the vehicle.
Click through below, view the amount you are able to borrow and check you're eligible without it effecting your credit score.
