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Buying a new or used car? Here’s how much to spend

Learn the affordability rule for buying a new or used car.

The amount you should spend a new car largely comes down to your personal situation and your personal tastes. Anything over 100% of your income is excessive, but on average 10-15% of your annual income is a sensible amount. If get a lot of use and enjoyment out of your car you might look at something like 15-30% of your income.

Why spending 10-15% of your income is a good option

  • For most income brackets there are cars for sale at this price. By following this rule you can be more confident that you’ve found an affordable option.
  • If you’re using a loan to buy a car, sticking to this rule can stop you from wasting money by borrowing more than you need.
  • Between insurance, petrol, maintenance and repairs, the ongoing costs of owning a car add up quickly. This leaves you a buffer to afford these.
  • Sticking to this price range, rather than going higher, may help you save considerable amounts of money in the long run.
  • Car values can depreciate rapidly. Think of your car as a useful tool, not as an investment.

How to find a car at the right price

By deciding ahead of time that you won’t spend more than 15% of your yearly income on a car, you will have a clear price in mind.

Annual incomeHow much you should spend on a car (15%)

Buying a car for under $3,000

  • At any given time, there are thousands of used cars being sold for under $3,000 in New Zealand. Check the AA Carfair, TradeMe, local classifieds, used car dealerships and online auctions.
  • Know what to look for in a used car. By following a checklist and knowing what to be aware of, you can avoid traps and pitfalls.
  • Consider car finance if it can help you get a more reliable or efficient vehicle, or if you’re caught short and urgently need a new car to get to work. Used car loans let you borrow as little as $1,000.
  • You may not want comprehensive car insurance for a vehicle under $3,000, even if you’re the kind of person who gives your car a name and emotionally bonds with it. Consider sticking to third party cover only. This is one of the cheapest types of car insurance, but it still offers important protection in the form of $20 million of legal liability cover.

Buying a car for under $15,000

  • You can find recent-model used cars online for $15,000 or less.
  • Car finance is available for higher amounts, but you’ll be awarded with a cheaper rate if you can use your car as security.
  • Vehicle auctions are popular among car dealers. This is where a lot of them go to pick up a bargain for resale at a higher price. Learn about car auction etiquette and you can beat them to the punch, picking up ex-fleet and government vehicles at a fraction of their value.
  • You might be able to save money by opting for a more recent or popular model, even if it costs a little bit more. The availability of spare parts can keep repair, maintenance and car insurance costs down.
  • Comprehensive car insurance may not deliver value for money in this price range. Consider third party insurance for important but inexpensive cover, or third party fire and theft insurance, which covers legal liability as well as theft and fire damage, while still being relatively affordable.

Buying a car for $15,000 or more

  • Used vehicles can be a good choice for various car types, including those in higher price ranges. Look around and you might find current-model cars in almost pristine condition for half of what they would cost brand new.
  • Vehicles in this price range and above can be loaded with additional features and electronics. If you want to save money, look for the features that deliver value and safety, rather than the luxuries, cosmetic features or conveniences.
  • If you’re planning on financing your vehicle, it’s usually worth using your car as security when taking out a higher loan amount. Used cars can still be used as security, but you might find that new car loans have a cheaper rate.
  • If you want to get a lot of use out of your car and plan on treating it like your own child, comprehensive car insurance can deliver a high level of protection.
  • If you’re choosing a car that’s loaded with electronics and advanced systems, remember that comprehensive car insurance will typically be needed to cover them. This is considerably more expensive than third party only car insurance, but also more useful. Compare a number of different car finance policies to find the right cover.

Calculate how much you should borrow

Consider three main factors when deciding how much you should borrow on your car loan: deposit, loan term and vehicle expenses.

You can use the calculator below to find out what car loan amounts and terms you could afford for a new car.

How to find a car loan that works for you

To find the right car loan, try following the guides below. Remember that everyone’s financial situation is different and that you should compare all options critically before deciding on one loan. The following are just suggested guides and may not be right for everyone.

You can use this guide for low rate car loans or this one for used car loans as a baseline for new or used car financing.

Compare a range of car finance options

Name Product Interest Rate (p.a.) Loan Amount Loan Term Establishment Fee Requirements Table description
Harmoney Car Loan
7.99% - 22.99%
$2,000 - $70,000
3, 5 or 7 years
Simplify Secured Car Loan
8.05% - 12.30%
$5,000 - $500,000
12 - 60 months
$100 - $500
Requirements: NZ citizen/permanent resident, income of at least $500/month.
See how much you could borrow without affecting your credit score.
Gem Secured Car Loan
8.99% - 24.99%
$2,000 - $100,000
12 months to 7 years
Requirements: NZ citizen/permanent resident or hold a valid work visa, employed, earning a stable income.
Secured personal loans with weekly, fortnightly or monthly repayment schedules and no early repayment fees.
MTF Finance Secured Car Loan
11.35% - 23.35%
$2,000 - $500,000
3 to 60 months
Up to $389
Requirements: NZ citizen/permanent resident or have a work visa, have a regular source of income.
Secured car loans from $2,000.
AA Money Car Loan
9.45% – 16.45%
$3,000 - $75,000
12 months - 60 months
Requirements: NZ citizen/permanent resident or visa holder, earn $30,000+ /year (before tax).
Loan approval within an hour.
Lending Crowd Secured Car Loan
6.45% - 17.23%
$5,050 - $200,000
3 or 5 years
$350 - $650
Requirements: NZ citizen/permanent resident, have a good credit score.
100% online with no paperwork or early repayment fees.

Image: Shutterstock

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