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No-deposit car finance
Need a car loan but don't have a deposit saved? Here's how to find the financing you need.
There’s a common question that many new car buyers ask 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 is used to finance the purchase of a new or used car. However, unlike a home loan or other types of car loans, this product does not require you to pay a deposit towards the car.
What factors will affect your ability to get no-deposit car finance?
No-deposit car loans aren’t available for all borrowers. Lenders need to be sure that offering you no-deposit financing doesn’t come with an unacceptable level of risk attached. Requirements vary between lenders, but 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. In this case, they will typically ask you to pay an upfront deposit.
- You have a bad credit history. Bad-credit borrowers are viewed as posing a higher risk to lenders. 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 the car is now less than the balance you owe on the loan, this is called ‘negative equity’. Most lenders will require a deposit in this case.
- 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. This can happen if the vehicle has been modified or has been well looked after and is in excellent condition
What will you be charged?
The costs and charges associated with a no-deposit car loan will vary depending on the lender you choose. 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 find out 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. If you’re not paying a deposit, the amount you need to borrow will obviously increase. You will 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.
- Fees. Find out which of the fees listed above will apply to your loan. How will those amounts affect the total cost of your loan?
- Loan term. How long will you have to repay the money you borrow? How will the loan term impact the total cost of the loan? For example, if you choose a longer loan term you might be able to access a slightly lower interest rate. But since you’ll be making repayments for an extra year or two the loan will still cost you more in the end.
- Repayment schedule and flexibility. How often will you need to make a repayment? What will the regular repayment amount be? If you come into some extra cash and want to make an additional repayment, or pay your loan off early, can you do so without 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. Be aware that the money you pay for insurance premiums doesn’t go towards paying off your loan amount.
Factors to look out for with no-deposit car finance
There are a few key traps to avoid when taking out a no-deposit car loan:
- Borrowing too much. Having no deposit means you will need to borrow more than usual—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. 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 won’t 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. Hopefully these tips will help you get the funds you need for your next vehicle.
Frequently asked questions about no-deposit car finance
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