Buying a car on credit

Buying a motor vehicle on credit

Here’s a checklist to work through to make sure this is an option for you:

• work out how much you can comfortably afford in repayments. Remember to include running costs like petrol and licensing fees
• if you need some help with your budget, contact the Budget Advice Service for confidential and skilled budget advice.
• interest and other charges will add to the cost of the vehicle, so try to keep the amount you borrow and the duration of the loan to a minimum. Remember – the longer you take to pay off the vehicle, the more interest you pay
• saving for a deposit means you’ll have less interest to pay and may have more choice about who you borrow from.

Look around

Shop around for the best finance deal and the best interest rates. Although most vehicle traders will offer to arrange finance, it may be cheaper to find your own. You can compare loan or credit terms against others by checking:

• the monthly repayments over the same period of time e.g. three years
• the total amounts you will pay
• the cash price of the goods – if sellers are arranging finance
• the finance rate.

Find out the TrueCost

Using the Ministry’s TrueCost Checklist you can see how much the cost of finance really is. Take the Checklist to the dealer and ask them to fill it in. The Checklist is designed to be used to:

• help you decide if the finance is a good deal
• take the Checklist home and talk about the deal, the car and the finance with someone you trust, a law centre or budget advisor
• look at other cars on other dealers’ yards. Take the Checklist to them and ask if they can give you a better deal on the finance
• take the Checklist to a bank, Credit Union, or other finance companies; and ask if they can give you a better deal
• ask the dealer what any fees are for – they have to be reasonable
• if there are insurances or warranties added, ask the dealer what they cover.

If you are not in paid employment, insurance for redundancy is of no use.

Visit the TrueCost section of this website.

Visit Sorted's car loan caluclator.

The paperwork

• if you decide to get a loan to buy a car, read the whole contract before you sign, especially the part of your contract that is headed What could happen if you fail to meet your commitments. This will tell you what the penalties are and what can be repossessed from you if you don’t pay
• if you buy the car on finance then you should be given one contract for buying the car and another contract for the loan
• check that the cash price of the car on the Consumer Information Notice is the same as the cash price on the loan contract
• you must be given a copy of your loan contract and ‘disclosure statement’ when you sign (or within five working days of signing it). You must also be given copies of any insurance policies. If you’re not given all this information within the required time, you are entitled to some money back
• if you haven’t taken the car home yet, you can change your mind about buying it. You have three working days from the day you get your contract to cancel the whole deal.