How car finance works in New Zealand

The short answer

When you finance a car, someone else pays the seller and you pay that someone back over months or years, plus interest and fees. The car itself usually acts as security for the loan. If you stop paying, the lender can take the car and sell it.

That is the whole idea. The rest of this page covers the pieces: the loan types, what you pay, what the lender checks, and what the contract must tell you. If you want the buying steps in order, see how to buy a car on finance.

The people involved

• You, the borrower. You choose the car and sign the contract.
• The seller. A dealer or a private seller. They are paid for the car.
• The lender. A bank, credit union, finance company or community lender. It pays the seller and gets repaid by you.
• A middleman, sometimes. A dealer, broker or referral service may introduce you to a lender. They are not the lender.

The lender sets the rate, the fees and the rules. Everyone else in the chain is either selling the car or passing your details on.

The main types of car finance

Secured car loan

You borrow a set amount for the car and the lender takes a security interest in the car. The rate is usually lower than an unsecured loan because the lender has something to fall back on. Our secured vs unsecured guide compares the two. The glossary explains a secured car loan in short form.

Hire purchase

The finance company buys the car and you hire it from them, paying instalments. You own the car only once the last payment is made. Until then the finance company owns it. See the glossary entry on hire purchase. Many dealer deals work this way.

Unsecured personal loan

You borrow cash and buy the car yourself. No security is taken over the car, so the rate is usually higher. It can suit an older, cheaper car that a car lender would not take as security.

Loan with a balloon payment

Part of the loan is left as a lump sum at the end, so the regular repayments are smaller. When the term ends, you pay the lump sum, refinance it or hand the car back, depending on the contract. Our glossary covers balloon payments and residual value. Treat the final payment as a real debt from day one.

Leasing

You pay to use a car for a period without owning it. It works differently again, so see car leasing if that is what you are looking at.

What a car loan costs

There are four things to look for in any offer.

• The interest rate. Charged on what you still owe.
• Fees. Establishment fees, monthly account fees and early repayment fees all add up.
• The term. How long you will repay. A longer term means smaller repayments and more interest.
• The total to repay. The only figure that compares offers fairly.

The Credit Contracts and Consumer Finance Act (CCCFA) requires lenders to give you a disclosure statement before you sign, showing the total to repay including interest, all fees, any security and how to apply for hardship and cancel. If that is missing or wrong, the lender can lose the right to charge fees and interest until it is fixed. Read the total cost of credit entry for the idea in plain terms.

A worked example (illustrative numbers only)

Say you borrow $15,000 at an illustrative 12% a year.

	3 years	5 years
Repayment per month (approx.)	$498	$334
Repayment per week (approx.)	$115	$77
Total repaid (approx.)	$17,935	$20,016
Interest (approx.)	$2,935	$5,016

The longer loan looks gentler each week and costs about $2,000 more overall. Whether that trade is worth it depends on your budget, and a shorter term only helps if you can afford it. The numbers are made up to show the method. Real rates and fees differ by lender and borrower, so put your own figures into the repayment calculator.

What lenders check

Lenders must make reasonable inquiries so that you can make the repayments without suffering substantial hardship, according to Consumer Protection. In practice they look at:

• Income. Proof of regular income, such as pay slips or bank statements. See what documents you need.
• Spending and debts. Rent, bills, other loans and buy-now-pay-later accounts.
• Credit file. Repayment history, defaults and recent applications. A soft credit check does not leave a hard mark.
• The car. Its age, value and condition, because it is the security.
• Your identity and licence. Usually checked at the start.

Each lender has its own criteria, so one can say no where another says yes. Nobody can promise approval. For the full list, see car finance requirements.

Security and the PPSR

When a lender takes security over the car, it records that on the Personal Property Securities Register (PPSR). That is how a buyer, or another lender, can see that money is owed on a car. It matters in two directions:

• If you buy a car with money owing on it, you could lose the car. A PPSR check before you pay catches that.
• If you sell a financed car, the loan has to be settled first. See selling a car with finance owing.

Where to get car finance

• Banks and credit unions. Often the cheapest, and often keenest on a clean credit file.
• Specialist finance companies. Focus on vehicles and may look at a wider range of situations.
• Dealers. Arrange finance for the car they sell, from one or more lenders. Consumer NZ says a dealer arranging a loan is likely to charge a broker or referral fee, which can raise the cost.
• Brokers and referral services. Pass your details to lenders.
• Community lenders. For people on low incomes who meet the criteria.

Our guide on dealer finance vs broker vs bank lays out the differences.

What happens during the loan

• You make the repayments on the dates in the contract, usually weekly, fortnightly or monthly.
• The lender must send you account updates at least every six months.
• Any change you agree to mid-loan has to be put in writing before it takes effect.
• You can ask to repay early. Check the contract for fees.

What happens if you miss payments

Late payments can lead to default fees and a mark on your credit file. If the problem continues, the lender can repossess the car, but the CCCFA limits how it does this: entry only where allowed, only the security item is taken, and interest and fees stop once a repossessed item is sold. Taking the car does not always clear the debt. If it sells for less than you owe, you may be liable for the shortfall.

If you see trouble coming:

• Contact the lender early and ask about hardship options. Lenders must consider hardship applications.
• Use a free financial mentor through MoneyTalks.
• Read struggling to pay your car loan.

What happens at the end

• Standard loan. You make the last payment, the lender removes its security from the PPSR and you own the car outright.
• Hire purchase. Ownership passes to you after the last payment.
• Balloon loan. The final lump sum is due, with the options set out in the contract.

Keep your documents, and check the PPSR to confirm the security has been removed.

Red flags

• A lender or middleman promising approval before looking at your income and credit.
• A deal quoted only as a weekly figure, with no rate, fees or total.
• A disclosure statement you did not get before signing.
• Add-on insurance or extras packed into the loan without being explained.
• Pressure to sign the same day.
• An unregistered lender. Lenders must be registered and belong to a dispute resolution scheme.

How Fair Finance fits in

Fair Finance is a referral service, not a lender and not a financial adviser, and it gives no personalised advice. One application and one soft credit check go to a panel of approved New Zealand lenders, and each lender decides case by case. We are paid by the lender only if a loan settles, and that never changes your rate. The how it works page shows the steps, and the quick check is the place to start.

Checklist

• Type of finance understood: secured, hire purchase, unsecured or balloon
• Rate, fees, term and total repayment in writing
• Disclosure statement received before signing
• Early repayment terms checked
• PPSR check done on the car
• Repayment fits your budget with room for repairs and insurance
• Hardship and complaints steps known

General information only, not financial advice. Rates, fees and rules change, so check the official pages below.

Sources

• Consumer Protection: What lenders must do
• Consumer Protection: Before you buy a used car
• PPSR: How the PPSR can help when you are buying used goods
• Consumer NZ: Spotlight on poor value car finance
• FMA: Consumer credit fees guidelines