Taking on a car loans NZ means paying hundreds of dollars a month for several years. This can be a big hit on your household budget. Do everything that you can to reduce the burden on your finances, especially if you have a single-income household. Below are just some of the things you might consider before filing car loans NZ applications:
Build Your Emergency Fund
Before making any big financial decisions, you need to study the risks and mitigate them. In the case of a loan, there is a risk that you might not have the money to pay the monthly dues somewhere down the line. Jobs, economies, and personal health are all unpredictable. If you miss a couple of deadlines, then your car might get repossessed which would waste all of the money that you already poured into it. This can be very stressful. Avoid this by building your emergency fund. Save enough to cover 6 to 12 months worth of expenses so you can have a buffer when the unthinkable happens.
Trade In Your Old Car
Make a substantial down payment to lower the loan’s interest rate. As per industry practice, this is usually around 20%. The emergency fund can be a source of your down payment but it’s best if you can find other means of covering the cost. For example, a lot of people trade in their old car to get the new one. Have your car assessed to know its current value. All vehicles depreciate with time but some might drop faster than others. If yours is in good condition with a few upgrades, then it might still fetch a good price. Dealers might accept it in lieu of cash for the down payment.
Improve Your Credit Score
Have you seen your credit score recently? If you have been paying your debts religiously, then you should have no worries about this. However, it’s still best to get a copy of the latest reports and study them. Know exactly where you stand so you can use the information to your advantage. A good credit rating will allow you to enjoy low interest rates. A bad credit rating will reduce your borrowing options and force you into high interest arrangements. The good news is that you can always improve your credit score although this can take time.
Set a Limit on Your Monthly Payments
Don’t take on more than you can chew. Set a limit to your monthly payments such as 15% of your monthly income. Find a model and a loan term that can meet this criteria.
