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How Do Interest Rates for Car Loans Work?

Thursday, 10 June 2021

How Do Interest Rates for Car Loans Work?

It’s exciting when you get a chance to take out an auto loan to finance your car in NZ. But does the amount you’ll be paying monthly or yearly make sense to you? That’s where interest rates on car loans come in. Understanding how interest rates work helps you to settle on a loan you can manage.


How Interest Affects Your Car Cost

When a lender loans you the money, you’re expected to pay back the principal amount (the amount borrowed from the lender) plus an extra fee. The additional amount is the interest, and it’s determined by the rate charged on the total sum borrowed (interest rate).

Simply put, interest rates NZ dictate how much more it will cost you to finance the car above the principal amount. The type of interest primarily imposed on a car loan is simple interest—a flat rate percentage calculated on the principal. You can save a lot on simple interest loans if you make your payments on time. Check out our Kiwi Car Loans vehicle financing calculator for rates.

What Determines Your Car Loan Interest Rate?

Your finance lender will evaluate various factors when reviewing your application to determine the interest rate percentage to charge on your car loan. These determinants include:


Credit History

Your credit history is a primary determinant of your vehicle loan’s interest rate. Any finance lender may consider approving your loan at a lower interest rate if you have a high credit score. If you want a car loan with bad credit, you may be charged a higher interest rate so be ready to spend a significant time searching for reasonable rates, or just talk to us and we will scope the best rate for you.


Loan Tenure

When taking out motor vehicle finance, consider the repayment tenure. It’s tempting to settle for longer loan terms and enjoy a lower monthly payment, but that might attract higher interest rates. Evaluate how much more you’ll have fully paid on the car based on its value and make an informed decision.

Down payment 

Placing a sizable down payment will lower your principal amount, reducing the lender’s risk, hence a lesser interest rate. Small down payment attracts high interest in most cases. The good news is you can apply for 100% no deposit auto finance at Kiwi Car Loans and enjoy affordable rates.


Vehicle Model and Age

Your car model is a decisive factor in your loan interest rates. Different car models will fetch varied prices. For instance, lenders may charge lower interest on a popular car model because it has a higher resale value than a less popular model.

More so, used car loans NZ are riskier to the lender than new car loans. That’s why you’ll get a new car loan at a relatively lower rate compared to a used car loan.


Income Level

A steady monthly income indicates that you’re capable of financing the vehicle in NZ on time while complying with set terms. So, the lender might offer the car loan at a lower interest rate.


Market Condition

The economy dictates the car financing interest rates in the auto marketplace. During a financial crisis, interest rates tend to go down and rise steadily when the economy gets stronger.

Can You Reduce the Interest Rate On Your Car Loan?

The simple answer is yes. You only need to take time and understand the factors influencing the interest rates on car loans and work on them to your benefit. For instance, you can:

  • Maintain a healthier credit history
  • Make a higher down payment
  • Source for more income
  • Or consult lenders that offer custom interest rates like Kiwi Car Loans.


Kiwi Car Loans Offers the Best Rate Finance in New Zealand 

At Kiwi Car Loans, we offer financing solutions based on individual specifications. Note that a lower interest rate alone doesn’t equate to a good deal. That’s why we’ll consult with you, know your needs, compare different interest offers, analyze all other terms on the car loan and go for the best auto financing deals in NZ. If you would like to do some sample calculations yourself, please check out our car loan calculator.


10.45% 19.95%

$143 Apply Now

* Interest rate is indicative range only.


10.45% 19.95%

$27,921 Apply Now

* Interest rate is indicative range only.