Loan options from finance companies are often tainted by fears of exorbitant interest rates, penalties and financial suicide. In reality, loans from finance companies can often work out far cheaper than loans from banks. How?

Is a bank really cheaper than a finance company?



Let's do the maths!

If you borrow $10,000 over a three year term at 14% interest, your monthly repayments will be roughly $341 per month or around $85 per week. At the end of the loan term you will have paid a total of $2,304 in interest on top of the $10,000 you borrowed. Seem like a lot? Let's compare this to someone who borrows against their mortgage.

If you borrow $10,000 at a typical mortgage rate of 6% over the typical mortgage term of 15 years, it will add approximately $84 per month to your mortgage repayments. While this is significantly cheaper than a finance company in terms of monthly repayments, because the term of the loan is far longer you will end up paying a massive $5,190 in interest. If your mortgage term is 20 years this amount increases even further.



So which is better?

To finance your new In the short term, going to the bank car seems like a far better option due to the low repayments. However those repayments are low because of the lengthy loan term which means in the long run, the bank can be significantly more expensive. What you need to do is to evaluate your situation and priorities to make a decision that suits you.

Another solution may be to investigate setting up a revolving credit mortgage or second mortgage account which allows you to pay off the car loan at a far quicker rate while still taking advantage of the low interest rates. These options aren't available to everyone so you may need to discuss different options with your bank manager.

If you need any advice or information about the finance options available to you, we encourage you to email us on sales@cheapvehicles.co.nz or give us a call. You can find all of our details on the Contact Us page.



How to apply for your car finance:

Applying for finance for your next car is easy. Simply fill out the finance application form below, print it out and submit it. We'll handle the rest! If you have any questions feel free to contact us and we'll get you on the right track.