Car Loans | How to Get the Lowest Interest Rate
We list the best car loans and help you navigate lender options, interest rates, loan terms, fees, add-ons, and more to get the best deal.
Updated 26 March 2024
Summary:
- The difference between 'good' and bad car loans comes down to the interest rate, loan term and the contract's fine print.
- In almost every case, the cheapest loan overall has the lowest interest rate, a short term to repay (e.g. 1-3 years, not 5 or 7) and allows early repayments without penalties.
- New Zealanders too often overpay for their car loan - it's a billion dollar problem, and debt charities regularly complain to media about how unaffordable car loans can be. Our guide outlining 20+ car buying mistakes covers loans and finance, the costs of which, for many, become overwhelming.
- Everyone's car finance needs are unique, but so are the loan offers you'll receive by working with a broker and/or applying directly with lenders who offer good deals.
- Our goal is to reduce all extra charges associated with your car loan, which can disguise themselves as' must-haves'. These include add-ons such as extended warranties, mechanical insurance, and GAP insurance, among others.
To help you find the best car loan, our guide covers:
- Getting the Best Interest Rates to Make Your Car Loan Cheaper
- Where Can I Get a Car Loan From?
- How to Apply for a Car Loan
- The Best Car Loan Deals from Lenders, Brokers, Banks, Credit Unions and More
- Frequently Asked Questions
Know This First - The Best Car Loan Follows These Rules:
- It doesn't rollover into a new term but is instead structured to be repaid in three years or less. While this means higher repayments, it significantly lowers the total interest cost.
- It has flexibility in repayment schedules that allow extra payments without any penalty or limit. This speeds up the journey to being loan-free.
- It offers pre-approval, allowing you to negotiate like you were a cash buyer. What you offer isn't 'subject to finance'; you're pre-approved and have all the power in the transaction to get the best price.
Important: Car loans terms can be confusing - our car loan glossary explains key terms if you're unsure about anything.
Getting the Best Interest Rates to Make Your Car Loan Cheaper
Interest rates make or break a car loan; the lower the interest rate, the less the loan costs, and vice versa. Too many New Zealanders get sucked into high-interest car loans because they think there isn't an alternative. The car lending market is competitive, and deals are easily found, but for everyone who signed up for a 10% p.a. interest rate car loan, countless others were offered 20% and even 30% p.a.
The best way to approach buying a car with finance is to get a pre-approval from a lender who beats the market. This pre-approval represents a real rate and a dollar amount you can borrow. The worst thing you can do is take the first loan you're offered or sign up with the car dealership without comparing lenders, but sadly, thousands of New Zealanders do just that every month.
Understanding Secured vs Unsecured Car Finance
The choice between secured and unsecured car finance can greatly impact your loan conditions and costs:
- Secured Loans are ideal for newer vehicles. Since the car serves as collateral, they offer lower interest rates. They are less risky for lenders and typically allow higher borrowing amounts.
- Unsecured Loans: These offer more flexibility in usage but come with higher interest rates and lower borrowing caps due to the increased risk for lenders.
Where Can I Get a Car Loan From? Understanding Options - Dealerships vs Banks vs Brokers vs Online Lenders vs Car Loan Franchises and Paying Cash
Given the financial risks , navigating your options when looking for a car loan is as important as choosing the right car. There are five primary channels for obtaining car finance: car dealerships, banks, dedicated car finance brokers, online lenders and franchises. Each has its advantages and considerations, which we explain in detail to help you make an informed choice.
1. Car Dealerships
Car dealerships are often the first port of call, offering finance options alongside their range of vehicles. While this route promises convenience and possibly immediate 'drive-away-today' financing, it is usually expensive unless you buy a new car from a manufacturer.
Pros:
- Immediate financing alongside vehicle purchase as part of an 'all in one' solution.
- If you take the finance offered, there is potential for bundled deals or discounts on the car.
Cons:
- Interest rates can be higher due to dealerships' focus on sales and maximising revenue. Dealerships often put their margin into a car loan, making it an expensive debt.
- Financing terms may not be as favourable or flexible as what banks, brokers or online lenders offer.
- Dealer financing primarily serves the dealership's interests (making as much money as possible from the sale of a car), which will rarely align with yours (buying an affordable car).
2. Banks and Credit Unions
Banks and credit unions are trusted lenders for car loans, but getting an application approved is not always easy, and the interest rates can be high.
Pros:
- Established trust and familiarity (the bank or credit union may already have a financial relationship with you).
- Directly dealing with a known financial institution means you'll control the process.
- Buying a car with a mortgage facility is convenient but often expensive in the long term (as we outline below).
Cons:
- Rates and fees might not be as competitive - in many cases, they're not. Some banks rely on customer loyalty and don't want to compete, while others find car loans risky and won't lend at all - Kiwibank is one example of a bank that's exited the car loan market altogether.
- Restrictive loan terms and repayment penalties often apply. Since banks don't compete with each other for car loans, the loan terms don't usually offer the borrower many benefits.
- Merging a car loan with an existing mortgage might seem convenient but can be costly in the long term. For example, a $15,000 top-up on a mortgage at 6.50% over 15 years means a total repayment of $23,520, whereas the same amount with a three-year car loan at 10.99% means you'll repay a total of $17,676, a significant saving.
3. Car Finance Brokers
Brokers specialise in car finance and offer personalised service, taking into account your circumstances. They can often secure deals that might not be directly available to you, and the best brokers have the buying power to offer 'lower-than-going-direct' to their customers.
Pros:
- You will have access to a broad range of lenders and tailor-made finance options; most brokers will work with at least five lenders, which will save time.
- Brokers provide expert guidance throughout the process, ensuring suitability and competitiveness.
Cons:
- Service quality can vary; choosing a reputable broker is important, as many unknown brokers are not experienced or purely focused on lending 'no matter what the cost', which won't usually give you the best deal.
- Most charge a fee for their service when you take the loan, though this is often offset by the better interest rates and repayment terms they can secure.
4. Online Lenders
Online lenders offer near-instant decisions for both secured and unsecured loans. They are useful for getting an idea of how much you'll pay for a car loan without spending time on a long application.
Pros:
- The convenience of an online application and quick decision-making.
- Competitive interest rates which are often lower than traditional lenders due to reduced operational costs.
- Flexible terms and loans tailored to various financial situations make online lenders accessible to a broader market.
Cons:
- Less personal interaction can be a downside for those who prefer face-to-face consultations or have specific needs.
- Requires a certain level of comfort with digital platforms and the trust to input financial details.
- Some may have stricter eligibility criteria or higher rates for those with less-than-ideal credit histories.
5. Car Loan Franchises
Car loan franchises offer a hybrid car loan experience, blending personalised local service with the efficiency of a larger New Zealand-wide network. The best example is MTF Finance, which operates dozens of branches in New Zealand.
Pros:
- Personalised localised service with the backing of a reputable brand.
- Such lenders often have more flexible criteria than banks, making loans accessible to a diverse range of borrowers.
- Competitive interest rates and a dedicated focus on car lending.
Cons:
- Applicant approval is up to each branch and, therefore, can vary significantly between franchises.
- There is a potential for variability in customer service experience.
6. Paying Cash Upfront
Car Loan Expert's favourite car payment method is using cash. It's straightforward and eliminates debt.
Pros:
- You won't pay any interest and avoid all financing costs and fees entirely.
- You become the outright owner of your vehicle from day one.
- Cash in hand often translates to power at the negotiation stage, which means you are in a strong position to get a better price.
Cons:
- You'll need the money upfront, which can be significant. Using cash could drain your savings, which might have been your safety net or ticket to other investments.
Pros and Cons of Car Finance Options: Dealerships vs Banks vs Brokers vs Online Lenders vs Car Loan Franchises and Paying Cash
| Car Finance Option | Pros | Cons |
|---|---|---|
| Car Dealerships | Immediate financing, potential discounts on the car | Higher interest rates, less favourable terms, pressure to buy other add-ons |
| Banks and Credit Unions | Familiarity and control over application and draw-down process | Less competitive rates, restrictive terms |
| Car Finance Brokers | Access to range of lenders, expert guidance | Variable service quality (not all brokers are the same) and potential fees |
| Online Lenders | Quick decisions and competitive rates | Less personal interaction and rarely meet or discuss specific needs |
| Car Loan Franchises | Personalised service, flexible criteria | Variable approval rates and service |
| Paying Cash | No interest or fees and full ownership on day one | Significant upfront cost, potential impact on savings |
How to Apply for a Car Loan
New Zealand's strict lending laws don't limit anyone from applying for a car loan, but some people may have trouble getting approved.
To apply for a car loan, you'll typically need to meet the following criteria:
- Age Requirement: You must be 18 years or older.
- Residency Status: Applicants should be New Zealand citizens or permanent residents. Some lenders will consider applications from those on work permits, but it's less common.
- Income Source: A regular income is required, whether from employment or other consistent sources.
- Driver's License: Holding a minimum New Zealand learner licence is necessary.
You'll need to submit the following:
- Photo Identification: A valid passport or driver's licence.
- Proof of Address: Documents that verify your current living situation.
- Proof of Income: Recent payslips or other evidence of regular income.
- Bank Statements: These offer insight into your financial habits and stability.
Know This: Your wages or salary, current debts and credit history will influence the application process and the loan amount you can secure. Furthermore, younger applicants might face more conditions on any loan approved due to limited credit history.
Important - Sharing your banking details with a car lender or broker - What you need to know:
A key part of the car loan application process often involves sharing your banking details through secure third-party apps at the car lender's request. This practice is standard within New Zealand and serves an important purpose:
- Financial Assessment: It lets lenders gain a real-time, comprehensive view of your financial situation. This includes understanding your income, expenditures, liabilities, and financial behaviour.
- Efficiency and Security: The third-party apps use encryption and other security measures to protect your data. They're designed to share your financial information with lenders without exposing your login credentials or sensitive personal information.
- Streamlined Approval Process: By providing lenders with direct insight into your finances, the loan approval process can be quicker and more streamlined. It enables lenders to make more informed and faster decisions regarding your loan application.
Our View: Given the rise in banking fraud (as the NZ Herald reports in March 2024), feeling apprehensive about sharing banking details is normal. However, this process is standard industry practice, ensuring a more accurate and secure lending decision. If you have any concerns or questions about this process, discussing them with the lender or your car finance broker is the first place to start.
How long does it take to approve or reject a car loan application?
The time varies; with a car loan broker, the process can be as quick as an hour, and online lenders can give you a decision in minutes. In contrast, banks and credit unions might take a few days due to more extensive paperwork and approval processes, while applying to lenders directly usually sees a decision within one or two business days.
The Best Car Loan Deals from Lenders, Brokers, Banks, Credit Unions and More
Our extensive list below features various car loan offers. Please be aware that lenders and brokers assess applications differently, leading to a wide range of interest rates offered to borrowers.
Smart borrowers obtain free, no-obligation quotes from multiple lenders. It doesn't take long; you'll need to clearly state the amount you wish to borrow, your income, and any other financial commitments, such as existing loans or credit card balances. This information helps lenders accurately determine your affordability.
Important: Beyond the interest rate, car loans have one-off and ongoing fees. Our guides to administrative fees, late payment penalties, early repayment charges and PPSA fees explain more. Our list of lenders and brokers below specifies fees when known, but you'll need to confirm the exact one-off and ongoing fees in your car loan contract before signing.
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Simplify
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Harmoney (Secured Car Loans)
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MTF Finance
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Better Finance
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Co-operative Bank
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AA Money
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ANZ Bank
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ASB Bank
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Finance Direct
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GEM
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Geneva
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Marac
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Unity
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UDC
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Driva (Car Loan Broker)
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Westpac
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Frequently Asked Questions
What determines if my car loan application will be approved?
The CFCFA (lending) laws strictly control lenders. The outcome of your application depends on several factors, including your age (you must be 18+), residency status (NZ citizen or resident), steady income source, and holding a valid driver's license. Your credit history, how much you earn and spend, current debts, living situation (single vs married and with or without children, etc.), employment history, and the amount you want to borrow all play a role in determining whether or not you'll be approved.
Do I need to be a homeowner to get a car loan approved?
No, owning a home is not a prerequisite for obtaining a car loan. Lenders primarily focus on your income stability, credit history, and ability to repay the loan. For instance, if you're renting but have a stable job and a good credit history, you can qualify for a car loan.
Will bad credit stop me from being approved for a car loan?
No - securing a car loan is possible even with a challenging credit history. Lenders will assess factors like your current income stability and efforts to improve your credit. Demonstrating recent financial responsibility can significantly aid your application.
Are interest rates for car loans fixed, or do they move up and down?
Most car loans are taken on fixed interest rates. Usually, the terms are 1 to 7 years, with most New Zealanders agreeing to a 3 or 5-year car loan term.
How much can I borrow for a car loan?
The loan amount depends on your income, credit history, and the car's value. You can borrow up to 100% of the loan value, but the risk of getting into negative equity increases if you don't have a deposit. The amount you are approved to borrow varies based on individual assessments.
What documents do I need for a car loan application?
You'll need to provide identification (like a driver's license or passport), proof of income (such as pay slips), and recent bank statements. Proof of address and details of the vehicle you intend to purchase are also commonly required if your loan is relevant to a specific vehicle.
Does my employment type affect car loan approval?
Yes, your employment status is a key factor in car loan approvals. For example, if you have a permanent, full-time job, lenders typically view this as a sign of steady income, making you a lower-risk borrower. In contrast, someone working in a casual or contract role might face more scrutiny or higher interest rates, as their income could be seen as less predictable.
What happens if I miss a car loan repayment?
Missing a payment can lead to penalties and repossession and affect your credit history. It's crucial to contact your lender immediately. If you're facing financial difficulties, you can make a hardship application.
Is there a penalty for paying off my car loan early?
Some loans include early repayment fees. It's important to check the terms of your loan agreement. Paying off the loan early can save on interest, but fees might reduce these savings. Our guide to car loan early repayments has more information.
Can I secure a loan for a used car?
Yes, most lenders offer loans for both new and used vehicles. However, the interest rates and terms might differ based on the car's age and condition, meaning used car loans generally have higher interest rates than manufacturer-new cars offered at very low interest rates.
Are car loans available for private vehicle purchases?
Yes, this is very common. You'll see lenders advertised alongside used car sales on Trade Me and AutoTrader. The car loan process involves verifying the vehicle's condition and legal status to ensure a secure transaction.
I am buying privately and got approved for a car loan, but what happens if I don't purchase a car or change my mind after loan approval?
Most lenders understand that finding a suitable car takes time. That's why they typically offer a set period (for example, 20 working days) to finalise the vehicle purchase. If you don't find the right car or don't end up buying anything within this timeframe, the approval simply lapses. This means you won't be charged for this and can reapply when ready, giving you the freedom and flexibility to navigate your car-buying journey at your own pace.
How do I maximise my chances of approval?
First-time car loan applicants can increase their chances of approval by demonstrating financial stability. This includes maintaining a steady job, showing a consistent saving pattern, reducing any existing debts (such as credit cards, long-term finance cards, personal loans, etc), and, in some cases, having a larger deposit saved up. Considering a guarantor will also strengthen your application.
How does a joint car loan work, and what are its benefits and risks?
A joint car loan is where two individuals, often partners or family members, co-sign a car loan agreement. Because two people apply for a car loan, there is greater earning power, which increases the chance of approval and, in some cases, leads to being offered better loan terms. However, both parties are equally responsible for repaying the loan. If one party fails to make payments, the other is liable, which can impact their financial situation and credit history.
How does the loan term affect what I pay for a car loan?
The loan term is the duration you'll repay your loan, and most lenders allow anything from six months to seven years. A shorter term generally means higher monthly repayments (as you have less time to repay the balance) but less interest paid over the life of the loan. Conversely, a longer loan term lowers monthly payments (as they're spread out) but increases the total interest.
What should I do if I face difficulties making my car loan repayments?
If you struggle to keep up with loan repayments, you must immediately talk to your lender. Our guide to hardship applications has more information. Ignoring the problem is unwise and can lead to penalties, car repossession, and a negative impact on your credit history.