Buying a car is a big decision, and it is easy to focus on the price of the vehicle without thinking about the full cost of owning it.
If you are considering car finance in NZ, one of the most important things to work out first is how much you can comfortably afford each week. Your car budget should cover more than just the loan repayment. Fuel, insurance, registration, servicing, maintenance and other running costs all need to fit into your budget.
Working out your numbers before you start shopping can help you choose a vehicle that suits both your needs and your finances.
Start With Your Weekly Budget
A good place to begin is with your take-home income and your regular weekly expenses.
Look at what you have coming in and what you already need to pay for, including:
- Rent or mortgage
- Groceries
- Power and other household bills
- Existing loan repayments
- Insurance
- Phone and internet
- Savings
- Other regular expenses
Once you have accounted for these costs, you can see how much room you have for your vehicle.
The important thing is to leave some breathing room rather than using every dollar that appears to be available.
Remember That Your Car Costs More Than the Repayment
One of the easiest mistakes when budgeting for a vehicle is looking only at the finance repayment.
For example, if a car loan repayment looks manageable at $100 per week, the actual weekly cost of owning the car will be higher once other expenses are included.
Depending on the vehicle and how you use it, you may need to budget for:
Fuel or Charging
Your fuel or charging costs will depend on the vehicle, how far you drive and where you drive.
Someone who commutes long distances each week may have very different running costs from someone who mainly uses their car for short local trips.
Insurance
Insurance is another important cost to consider before choosing a vehicle.
The premium can vary depending on factors such as the vehicle, your circumstances and the level of cover you choose.
Registration and WoF
Vehicle licensing and WoF costs also form part of the ongoing cost of keeping your car on the road.
These expenses may not seem large when considered separately, but they should still be included when you are working out your overall car budget.
Servicing and Maintenance
Every vehicle needs regular servicing and may eventually require repairs, tyres or other maintenance.
It is worth allowing some money for these costs rather than assuming the finance repayment is your only major vehicle expense.
Other Costs
Depending on your situation, you may also need to consider parking, road user charges, accessories, tolls or other costs connected with using your vehicle.
Consumer Protection NZ also recommends considering the wider running costs of a vehicle rather than focusing only on the purchase price.
Work Backwards From What You Can Comfortably Pay
Instead of starting with a car you like and then trying to make the numbers work, start with your budget.
For example, imagine you decide that you can comfortably set aside $180 per week for all vehicle-related costs.
You might then allow part of that amount for:
- Finance repayments
- Fuel
- Insurance
- Maintenance and servicing
- Registration and other vehicle costs
The amount left for your finance repayment gives you a more realistic idea of the vehicle price you should be looking at.
This approach can help prevent a common problem: choosing a car based on its purchase price and only discovering later that the total weekly cost is higher than expected.
Don’t Forget the Deposit
If you have savings available for a deposit, it can reduce the amount you need to borrow.
For example, if you are buying a $25,000 vehicle and put $5,000 towards the purchase, you would need to finance $20,000 rather than the full $25,000, subject to the lender’s assessment and the final finance arrangement.
A smaller loan generally means less money borrowed and therefore less interest charged on that amount over the loan term.
However, you should also consider keeping enough savings available for unexpected expenses rather than putting every dollar into the vehicle.
If you are considering financing without an upfront deposit, you can also learn more about zero deposit car finance in NZ and the factors to consider before choosing this option.
Think About the Loan Term
The loan term can make a noticeable difference to your regular repayment.
A longer term can reduce the size of each repayment because the borrowing is spread over a longer period. However, interest may be charged for longer, which can increase the total amount you repay.
A shorter term may mean higher regular repayments, but you may pay less interest overall.
When comparing car finance options, look beyond the weekly or fortnightly repayment and consider:
- Interest rate
- Loan term
- Fees and charges
- Total amount borrowed
- Total amount payable
- Your ability to comfortably manage the repayments
The cheapest-looking weekly repayment is not necessarily the lowest overall cost.
Consider the Type of Car You Actually Need
Your car budget should also reflect how you plan to use the vehicle.
For example, a person who mainly drives around town may have different needs from someone who regularly travels between cities or needs a vehicle for work.
Think about:
- How many kilometres you drive
- How many passengers you normally carry
- Whether you need extra boot space
- Whether you need towing capability
- Fuel or charging costs
- Expected servicing and maintenance
- The age and condition of the vehicle
Choosing a vehicle that matches your actual needs can help you avoid paying for features or vehicle size that you may not use.
What About Buying a Used Car?
A used vehicle can be an option for buyers who want to keep the purchase price lower.
However, the purchase price is only one part of the decision. Before buying, consider the vehicle’s condition, service history, mileage, expected maintenance and other ownership costs.
Before choosing a vehicle, you can also browse GoWaka’s vehicle listings to see the types of new and used vehicles available.
If you are buying from a dealer, you should also understand the sales agreement and check important vehicle information before signing.
Check Your Numbers Before Applying for Car Finance
Once you have worked through your income, expenses and vehicle costs, you should have a clearer idea of the finance amount that fits your budget.
A simple checklist can help:
- Work out your take-home income.
- List your regular household and financial commitments.
- Estimate your vehicle running costs.
- Decide what repayment you could comfortably manage.
- Consider your deposit or trade-in.
- Compare different loan terms and the total cost of borrowing.
- Choose a vehicle that fits within the budget rather than stretching your budget for a particular vehicle.
Remember, the amount a lender may approve is not necessarily the same as the amount you personally want to spend. Your own budget should leave room for everyday expenses and unexpected costs.
For more information about preparing for an application, see GoWaka’s guide to getting pre-approved for car finance in NZ.
Use a Car Finance Calculator to Compare Scenarios
Once you have a rough budget, a car finance calculator can help you understand how different loan amounts, terms and interest rates can affect your repayments.
You can compare scenarios such as:
- A smaller or larger deposit
- A lower or higher vehicle price
- Different loan terms
- Different repayment frequencies
This can make it easier to understand what a particular vehicle could cost before you make an application.
Final Thoughts
Working out your car budget before you start shopping can make the whole buying process easier.
Rather than asking only, “Can I get finance for this car?”, consider the bigger question: “Can I comfortably afford to own and run this car?”
By looking at your finance repayment alongside fuel, insurance, servicing, maintenance and other running costs, you can make a more informed decision about the vehicle that fits your circumstances.
If you are ready to explore your car finance options in New Zealand, contact the GoWaka Car Finance team to discuss your vehicle finance needs and find out what options may be available for you.
