How to Choose the Right Term for Your Car Finance
Tuesday, 20 February 2024
When it comes to financing your car, one of the most important factors you must consider is how to choose the right term for your specific scenario. The length of the car loan influences your monthly payments, total interest costs, and how quickly you can own your vehicle outright. But how to choose the right term in your specific situation? Let’s explore! In this blog, we will dive into the key factors to keep in mind when you select a term for your car loans to ensure it matches your financial goals and circumstances.
Understand the loan terms
In New Zealand, Car loans often have term lengths ranging from 12 to 60 months. However, if you are considering a brand-new car loan, you may have the option of extending the term up to 84 months. Choosing a long-term loan can help you lower the monthly repayments, while the shorter-term may result in larger monthly repayments but save the total cost in the long run.
Consider your budget
Before you opt for the loan terms, assessing your monthly budget is quite necessary! This involves understanding your total income, and expenses, and then determining the amount you can allocate towards car repayments. Knowing your budget can help you make an informed decision. By having a clear overview of your financial situation, you can ensure that your monthly payments are well-managed and won’t strain your finances.
Ownership duration
Think about how long you wish to keep the car. If you plan to update your car in a few years, a short-term loan may be more suitable. Otherwise, a long-term loan with lower monthly payments may be a better option.
Balance monthly payments and overall cost
It’s essential to keep the balance between the monthly payments and overall costs. If you choose a short-term loan, your overall cost will be lower. However, you may be under a lot of stress from monthly payments. You can use our online loan calculator to see how different loan terms impact both monthly payments and total costs.
Pros and cons of a short-term loan
Pros:
- Lower total interest paid: One of the key advantages is paying a lower amount of interest throughout the loan terms.
- Fast debt repayment: By paying off your loan sooner, you will pay less interest during the life of the loan. And lower total interest paid can lead to better financial freedom and peace of mind.
Cons:
- Higher monthly payments: One of the main disadvantages of a short-term loan is that it always leads to higher monthly payments. As the loan term is shorter, the monthly payment is higher than a longer-term loan .
- More financial pressure: Since you must pay higher monthly payments, it might strain your monthly budget and put you under more financial pressure.
- Hard to qualify: Due to its short-term loan, a higher income is often necessary, making it more difficult to secure the loan.
Pros and cons of a long-term loan
Pros:
- Lower monthly payments: One of the primary advantages of choosing a long-term loan is that it can lower your monthly payments by extending the repayment over a longer time. Given that, you can make your budget and financial planning easier.
- Easier to qualify: Due to the longer-term loan and lower monthly payments, it might be easier for borrowers to qualify.
- Improved financial affordability: Longer-terms loan can make expensive cars more affordable. This means that the borrowers have a wider range of car options to choose from that are within their budget.
Cons:
- Higher total interest paid: A longer-term loan typically leads to higher total interest costs. As a result, you end up paying higher interest over the loan term.
- Longer debt obligations: The longer-term loan means that the borrowers will take a longer time to have ownership of the car and could result in owning more on the car than its current market worth for a consideration part of the loan terms.
- Higher loan costs: While the monthly payments are lower, the total costs including interest costs are higher. It might influence the borrowers’ financial situation in the long term.
Choosing the appropriate loan term is a critical component of the car-buying process. By considering the whole budget, interest rates, monthly payments, and total costs, you will be able to make a well-informed decision that suits your financial circumstances.
Don’t worry if you’re still not sure about the loan terms! Simply come to Kiwi Car Loans, and our expert and experienced brokers will help you! Contact us now and start your application right now!
See how affordable your dream is with our calculator
WHAT ARE MY REPAYMENTS?
HOW MUCH CAN I BORROW?
PAYMENT FREQUENCY
OUR INTEREST RATES VARY BETWEEN 10.45% AND 23.00%.
12 MONTHS 84 MONTHS
PAYMENT FREQUENCY
OUR INTEREST RATES VARY BETWEEN 10.45% AND 23.00%.
12 MONTHS 84 MONTHS
*Our fixed interest rates vary between 10.45% and 23.00%, and the rates you receive will depend on your individual circumstances. There is a loan establishment fee starting at $510, a PPSR fee from $7.39, and a monthly administration fee from $2.17. Approval for financing is subject to Kiwi Car Loans' Terms and Conditions, lending criteria, and responsible lending standards.
OUR INTEREST RATES VARY BETWEEN 10.45% and 23.00%
OUR LOAN TERM VARIES BETWEEN 12 MONTHS AND 84 MONTHS
LOANS RANGE FROM $5,000 TO $250,000
LOANS RANGE FROM $5,000 TO $250,000
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