Consumers ‘better off’ with dealer finance

As New Zealand's challenging economic climate continues, the Financial Services Federation (FSF) says consumers looking to purchase a vehicle should shop around and rethink whether “putting it on the mortgage” is the best idea.

Instead, it recommends any potential car buyers requiring credit turn to specialist motor vehicle finance providers.

Its advice follows the latest Centrix data showing mortgage arrears have increased 12 per cent year-on-year, while vehicle loan arrears have dropped from 5.7 per cent in May 2023 to 5.5 per cent in the same month this year.

Lyn McMorran, FSF executive director and a former president of the New Zealand Institute of Financial Advisers, says: “Adding a vehicle to a mortgage that still has 20-plus years to run with fluctuating interest can mean a borrower ends up paying many times more in interest than they originally borrowed, making it more expensive than a shorter-term motor vehicle loan.

“It can also mean borrowing for longer than the useful life of the asset – in this instance a car – so if the car is replaced say within five years, they are still paying for an asset they don’t even own anymore for another 15 years.

“It’s important to consider your options and whether a reputable motor vehicle finance provider who specialises in this area will mean you’re better off long term.”

McMorran, pictured, adds that if consumers are unsure about what steps to take, then speaking to a registered financial services provider or Money Talks mentor can help.

She notes arrears overall are trending upwards, according to Centrix’s data, but have come off a low base as people prioritised paying down debt over overseas holidays during the Covid pandemic.