Car loan for unemployed people in New Zealand: options and limits

Start with the car, not the loan

Before asking anyone for money, decide what you really need. A reliable small car with a recent warrant of fitness and a mechanical inspection often costs far less to run than a newer model financed over many years.

Work out the running costs as well: fuel, registration, insurance and servicing. A loan that you can repay but that leaves nothing for petrol will not solve the transport problem.

How lenders treat income that is not a wage

Banks, credit unions and finance companies each apply their own policy. Many look first for regular earnings, while some will consider benefit income, a partner's pay or part-time work, provided the repayments clearly fit your budget.

Expect to be asked for bank statements, proof of income and ID, and for a credit check. Under New Zealand's consumer credit law the lender has to make reasonable enquiries about whether you can afford the loan, which is protection for you as well as for them.

Good Loans from Good Shepherd NZ

Good Shepherd NZ offers no-interest, fee-free loans to people on limited incomes, and buying a car is one of the permitted uses. Its page states up to NZ$7,000 for a car, which savings can top up to buy a vehicle worth up to NZ$10,000, with higher-priced cars considered only in special cases.

The money is paid directly to the seller rather than to you. Applicants speak with a loan coach, and the page lists exclusions: people on Single Jobseeker Support, people whose only income is self-employment, and anyone who cannot afford repayments after essential costs. Thresholds are updated from time to time, so read the current page.

When a Work and Income advance may help

Work and Income can pay an advance of benefit for an essential or emergency cost, and car repairs are among the examples on its page. It is for people receiving a main benefit such as Jobseeker Support, and it has income and asset limits.

It has to be paid back, so it works as a short bridge, not a way to buy a car. Ask for the repayment terms when you apply. The page gives 0800 559 009 as the number to call.

Secured loans and what the security means

A conventional car loan is normally secured against the vehicle. If you stop paying, the lender can ultimately repossess the car and may still claim any shortfall. That is why a loan term that outlasts your confidence in your income is a bad bargain.

Before you accept an offer, compare the interest rate with the full set of charges. Add establishment fees, any early-repayment charge and compulsory insurance, then ask for the total repayable.

Questions to ask any lender

Is the rate fixed or variable? Is there a fee for paying early? What happens to the loan if my income drops for three months? Ask for the answers in writing.

Risks specific to buying a car on credit

Dealer finance and high-cost lenders can look easy, but the rates may be much higher than at a credit union or a not-for-profit. Be wary of any offer that arrives before anyone has looked at your budget, or that asks for an upfront fee before funds are released.

Also guard against paying more for the car than it is worth. Check the car's history and ownership on the register before paying a deposit, and keep copies of every document.

Free help before you commit

MoneyTalks, run through Financial Capability, connects people with free financial mentors and can be reached on 0800 345 123 or by text on 4029. A mentor can test your budget against a proposed repayment. Good Shepherd also points people who are not ready for a loan towards the same mentors.