No-deposit car loans

Need a car loan but don't have a deposit saved? Here's how to find the financing you need.

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There’s one common question that many new car buyers have asked when searching for their next set of wheels: Can I get a car loan without a deposit?

The good news is that the answer to this question is a resounding yes – there are many lenders that offer no-deposit car loans to New Zealand car buyers. Here’s how to compare your loan options and find one that’s right for your needs.

How do no-deposit car loans work?

A no-deposit car loan is a type of secured personal loan that provides the financing you need to buy a new or used car. However, unlike a home loan or many other types of car loans, this product does not require you to pay a deposit towards the purchase price of the car.

The availability of no-deposit car loans varies depending on a lender’s maximum loan-to-value ratio (LVR) – this is the maximum percentage of the car’s value that the lender is willing to let you borrow. Before agreeing to lend you money to buy a car, a lender will calculate the LVR figure for your desired loan amount by dividing the loan amount by the book value of the vehicle.

If this figure is within the lender’s LVR guidelines, you may be approved for financing. LVR guidelines differ from one lender to the next, with some offering flexible LVRs of up to 150% or even 180% of a car’s value.

What factors will affect your ability to get a no-deposit car loan?

No-deposit car loans aren’t available for all borrowers, as a lender will need to be sure that offering you no-deposit financing doesn’t come with an unacceptable level of risk attached. While requirements vary between lenders, you typically won’t be able to qualify for a no-deposit car loan if:

  • You don’t have any credit history. If you can’t demonstrate a history of borrowing money and then making on-time repayments to pay off your debt, lenders can’t examine your track record as a borrower. As a result, they will usually require you to pay an upfront deposit.
  • You have a bad credit history. Bad-credit borrowers are viewed as posing a higher risk to lenders, so most will require you to have a deposit saved if you want to qualify for a car loan.
  • You have negative equity on your current car. If you’ve previously borrowed money to buy a car, and the value of that car is now less than the outstanding balance you owe on the loan, you’re considered to be in negative equity and your lender will require a deposit.
  • The sale price of the car exceeds its book value. In some cases, the sale price of the car you want to buy may be well above its book value, such as if the vehicle has been modified or has been well looked after and is in excellent condition. When this happens, you may need a deposit to ensure that your loan amount falls within the lender’s LVR guidelines.

What will you be charged?

The costs and charges associated with a no-deposit car loan will vary depending on the lender you choose, so keep an eye out for the following fees when you apply:

  • Establishment fee. This fee covers the cost of setting up your loan. It is usually added to the loan principal and you’ll need to pay it off along with the rest of the money you borrow.
  • Ongoing monthly fee. You will usually need to pay a monthly maintenance fee on your no-deposit car loan.
  • Early exit or early repayment fee. If you repay your loan early, the lender may levy a fee against you to help recover its lost interest.
  • Additional repayment fees. Some lenders will charge a fee if you make additional repayments above and beyond your approved repayment schedule.
  • Late payment fees. If you’re late making a repayment or you miss it altogether, expect to be charged a fee. You should familiarise yourself with the amount of this fee before you apply for a loan.

How to compare car loans with no deposit

You’ll need to consider the following features when comparing the strengths and weaknesses of no-deposit car loans:

  • Loan amount. Because you’re not paying a deposit, the amount you need to borrow will obviously increase. You will therefore be borrowing 100% or even more of the value of the car you’re buying, so make sure you will be able to afford to pay off your debt.
  • Interest rate. This is a crucial factor to consider when choosing a loan, as the interest rate that applies has a huge bearing on the total cost of the loan. Finding the lowest interest rate can save you thousands of dollars over the life of a loan, so shop around for a competitive rate. Remember also that lenders offer both fixed- and variable-rate loans, so make sure you compare rates across the same types of loans.
  • Fees. Read the terms and conditions of any loan you’re considering to find out which of the fees listed above will apply. How will those amounts affect the total cost of your loan?
  • Loan term. How long will you have to repay the money you borrow? Make sure you’re aware of how the loan term can have an impact on the total cost of a loan. For example, if you choose a longer loan term you might be able to access a slightly lower interest rate, but the fact that you’ll be making repayments for an extra year or two may mean that the loan still ends up costing you more in the long run.
  • Repayment schedule and flexibility. How often will you need to make a repayment and what will the regular repayment amount be? If you come into some extra cash and want to make an additional repayment or even pay your loan off early, can you do so without incurring any extra fees?
  • Additional features. Some lenders may require you to take out additional loan features, such as loan insurance. This insurance is designed to cover you if you’re unable to afford your loan repayments, but be aware that the money you pay for insurance premiums doesn’t go towards paying down your loan amount at all.

Factors to look out for with no-deposit car loans

There are a few key traps to avoid when borrowing through a no-deposit car loan:

  • Borrowing too much. Having no deposit means you will need to borrow more than usual, so it’s important to be sure you can afford to pay back the money you borrow plus interest.
  • Early repayment fees. Don’t assume that a lender will allow you to pay your loan off ahead of schedule if you wish. Early repayment fees apply in many cases, so make sure you’re aware of these charges before you apply for a loan.
  • Car eligibility. Lenders will not offer no-deposit car loans for all vehicles – for example, if you’re buying a used car that’s more than 10 years old, you may find that you can only get financing through an unsecured personal loan.

What you will need before applying

If you’re searching for a no-deposit car loan, make sure you meet any loan criteria that apply. You will usually need:

  • To be 18 years of age or older
  • To be a New Zealand citizen or permanent resident
  • To have a good credit history
  • To have a steady source of income

During the application process you will need to provide:

  • Your name, contact information and personal details
  • Proof of ID
  • Details of your employment and income
  • Information about your liabilities and outstanding loans
  • Details of the vehicle you wish to purchase

Once you’ve compared a variety of loan options and decided on the right one for your needs, you can apply for financing and hopefully access the funds you need to get behind the wheel of your next vehicle.

Frequently asked questions about no-deposit car loans

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