How to buy a car on a benefit in NZ

The short answer

Buying a car on a benefit is a budgeting job first and a finance job second. The people who end up in trouble are rarely the ones who were turned down. They are the ones who said yes to a weekly payment that looked small and left nothing for insurance, fuel and the next repair.

So the sequence below starts with your weekly numbers, not the car. If you only want to know how lenders treat benefit income, read does a benefit count as income for a car loan. This page is about the whole purchase, from first budget to handing over the money.

Step 1: find your real weekly number

Write down what comes in each week, then what has to go out: rent or board, power, food, phone, any debt repayments, and school or medical costs. What is left is the most a car can ever cost you, all in.

Then take off the costs of running it. Consumer Protection and Sorted both list the same ones: interest and fees if you borrow, insurance, registration, warrant of fitness, servicing and repairs, fuel and parking. A car that costs $50 a week to repay can cost $100 or more a week to own.

Our guide to the real cost of owning a car has the full list. If the numbers do not leave a gap after the essentials, the honest answer is to wait and save, or to look for a cheaper car, before you talk to any lender. Lenders also have to check that repayments will not cause you substantial hardship, so a budget that is already full is likely to be spotted.

A free budgeting service can do this with you. MoneyTalks (0800 345 123) is free, and a financial mentor will not try to sell you a loan.

Step 2: sort your licence first

Check you hold a current licence of the right class. A learner or restricted licence limits who can drive with you and when, and some lenders and insurers care about licence type.

Work and Income lists help to get a driver licence, which can cover lessons, test fees and a car to sit the test in. You do not have to be on a benefit to use it, and you can ring 0800 559 009 to ask. A lender will also ask to see your licence as photo ID, so having it in hand saves time.

Step 3: know what Work and Income does and does not do

This is where many people lose weeks. Work and Income does not run a fund for buying cars. Its car repairs page says it can generally pay up to $400 towards some repairs, that you repay it, and that it does not cover fuel, warrant of fitness, insurance, registration or regular servicing.

That still matters once you own the car. A $400 repair bill is the kind of thing that can sink a tight budget the month after you buy. Our page on whether WINZ will help you buy a car goes through the payments that exist and how to ask for them.

Step 4: choose the cheapest reliable car, not the nicest one

On a benefit, the right car is a plain, common one that parts and mechanics are easy to find for. Think about these before you look at a single listing:

• Price you can fund. Work backwards from your weekly number in step 1, not forwards from a car you like.
• Cost of the next repair. Common models with plenty of parts usually cost less to fix than rare imports.
• Insurance. Get a quote on the exact car before you agree to buy. Some lenders will want comprehensive cover while the loan is open.
• Fuel use. A small engine saves money every week for years.
• Warrant of fitness. Ask when the next one is due and what it will probably cost to pass.

Do not stretch to a newer car because the weekly figure looks lower over a longer loan. A longer loan costs more in interest overall, and the car loses value while you are still paying.

Step 5: pick the money in cost order

The cheapest way to pay is the one with the least interest and the fewest fees. For most people on a benefit the order runs like this.

1. Savings. Even a few hundred dollars saved over a couple of months lowers every other option. Consider also whether a family member could lend or give a little.
2. A Good Loan from Good Shepherd NZ. It lends up to $7,000 for a car, with your own savings you can aim at a car up to about $10,000. It is no interest and no fees, and the money is paid straight to the seller. It will not lend if Work and Income can help with the purchase, if you are on Single Jobseeker Support, or if your only income is self-employment. Its income caps and other rules change, so read its page and ring 0800 466 370.
3. A bank or credit union personal loan. Sorted suggests comparing banks and credit unions for the lowest rate and fees, and notes an existing relationship can help.
4. Commercial car finance. Here the car is the security, the interest is higher, and a lender can repossess the car if you fall behind. This is the step our other pages cover in detail: car finance on a benefit with bad credit, no deposit finance on a benefit and lenders that accept benefit income.

If you use commercial finance, Fair Finance can help you compare. We are a referral service, not a lender and not a financial adviser. 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 when a loan settles, and that never changes your rate. If a Good Loan fits you better, use it.

Step 6: gather what a lender will ask for

You will make this part smoother if the paperwork is ready before you apply. Typical items:

• Photo ID and your driver licence.
• Recent bank statements showing your benefit payments going in.
• Proof of address.
• Details of what you owe, including any money owing to Work and Income or IRD.
• Details of the car, once you have chosen one: make, model, year, odometer and the VIN.

Lenders must make reasonable inquiries, which can include evidence of your income and your spending, so expect questions about your outgoings as well as your benefit. See how lenders assess benefit income for what they typically look at.

Step 7: check the car and the seller before you pay

Whoever you buy from, do the checks that protect your money.

• Dealer or private seller. A registered dealer must display a Consumer Information Notice, and dealer sales are covered by consumer law. Private sales are not, and are often “as is, where is”. Consumer Protection says buying from a registered dealer is safer, though a private sale can cost less.
• Money owing on the car. Run a PPSR check. If a lender still has a claim on the car, it may be able to take it back even after you have paid.
• Condition. Get an independent mechanical inspection if you can, and ask for service records.
• The contract. Read the disclosure statement. Check the cash price matches the price on the notice, and look at fees, insurance and the total you will repay. You have five working days to cancel a credit contract after you get the disclosure statement.
• Pressure. If anyone says you must sign today, leave the car at the yard and take the paperwork home.

A worked example (illustrative numbers only)

These numbers are made up to show the method. Your own costs will differ.

Say you plan to buy a $6,000 car with a three-year loan at 15% a year and no deposit. The repayment is roughly $208 a month, or about $48 a week, and you would repay about $7,490 in total. Now add the running costs.

Weekly item (illustrative)	Amount
Loan repayment	$48
Fuel	$30
Insurance	$12
Set aside for registration, WoF and servicing	$15
Weekly total	$105

If $105 a week is more than your budget has spare, the fix is a cheaper car, a bigger deposit or a smaller loan, not a longer term. Try your own figures in the repayment calculator. Rates, fees and terms vary by lender, and the rate you are offered is the lender’s decision.

Red flags

• A page or advert promising a car whatever your credit history. Nobody can promise approval before seeing your income and credit file.
• A weekly figure with no total. Always ask for the total repayment in writing.
• Add-ons rolled into the loan. Sorted warns that optional insurances and loan repayment insurance add to the amount you borrow and attract interest. Ask what each one costs and whether you need it.
• A dealer asking you to hand over your payment card or sign over benefit payments. Work and Income arrangements are made with Work and Income only.
• Pressure to sign on the day.
• A guarantor request you do not understand. Consumer Protection advises avoiding a loan that needs a guarantor if you can.

Checklist

• Weekly budget written down, with running costs included
• Current driver licence, or lessons booked
• Rang Work and Income on 0800 559 009 to check what help fits
• Checked whether Good Shepherd’s Good Loans fit
• Insurance quote for the exact car
• Bank statements and ID ready
• PPSR check and an independent inspection done
• Total repayment, fees and cancel rights read before signing
• Free budgeting call booked if anything feels tight

General information only, not financial advice. Benefit rules, limits and lender products change, so check the official pages below before you rely on a figure.

Sources

• Work and Income: Car repairs
• Work and Income: Help to get a driver licence
• Good Shepherd NZ: Good Loans
• Consumer Protection: What lenders must do
• Consumer Protection: Loan for your car
• Consumer Protection: Researching cars and sellers
• Sorted: Car loans