Buying a motor vehicle on credit

If you’re thinking about buying a vehicle using a loan or hire purchase, we have developed a checklist for you to work through to make sure this is an option for you.

Checklist

• Work out how much you can comfortably afford in repayments. Remember you will also have to pay for running costs such as petrol, routine maintenance, and licensing fees, as well as repayments.

• If you need some help with your budget, contact the Budgeting Services Board (see under Budget Advice Services in the White Pages of your phone book for listings) for confidential and skilled budget advice or visit their website.
• 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 or hire purchase to a minimum. Remember - the longer you take to pay off the vehicle, the more interest you pay.
• If you save up a deposit, you will pay less interest and may have more choice about who you borrow from. Not all finance companies or banks will lend to consumers without a deposit.
• Shop around for the best finance deal and competitive interest rates. Although most vehicle traders offer to arrange finance, it may be cheaper to find your own. Ask lenders how much a loan from them will cost. Moneylenders, finance companies, and cash loan companies often have higher interest rates than banks.

Compare loan or hire purchase terms against others by checking:

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

• Look out for high extra charges. A reasonable security registration fee should not exceed $12. Booking fees, legal fees, valuation fees and documentation fees can add hundreds of dollars to the cost. If these charges seem too high, negotiate to get them lowered or go elsewhere if the lender refuses. Check if broker fees are being charged. If a broker fee is charged, a broker should be involved in arranging the finance.
• If you are told you have to pay for insurance as part of the loan or hire purchase agreement, ask what it covers. Get a copy of the policy. 

If it is payment protection or consumer protection insurance, make sure it applies to you. Most of these policies only cover you if you have been in the same job for 12 months or more, or work full-time. If you are a beneficiary, this insurance may not be useful to you. 

If the policy does apply to you, it may cover your loan or hire purchase payments for a few months if you lose your job. It is likely that a hire purchase agreement will require you to have vehicle insurance as the vehicle is not yours until it is fully paid for. 

• Don’t sign anything unless you are sure. Once you sign up you only have three working days to cancel a hire purchase or loan contract. If you bought the vehicle on hire purchase and have taken it home you can only cancel the hire purchase part of the deal – you have bought the vehicle so you will now have to pay the cash price for it within 15 working days.
• Get a copy of the loan or hire purchase contract before you sign it. Take it to a Citizens Advice Bureau, community law centre, budget advisor, or to another person you trust for a second opinion.
• If you get a loan you may be asked to provide security. This means that if you do not pay, whatever you have given as security can be repossessed. Usually the vehicle you are buying will be sufficient security for a lender. Some places may ask for more - if you are asked to put up your house or other property as security, remember you could lose these as well as the vehicle if you cannot keep up the payments.
• You may be asked to provide a guarantor for your loan or hire purchase. If you ask a friend or a member of your whanau or family to be a guarantor, remember that they will have to pay the money you owe if you do not.

For more information on using hire purchase and loans see our Credit Issues section.