9 tips for avoiding a lemon when financing a used vehicle
Posted October 2016 by Melissa Abraham-Smith
Make sure your next car goes the distance with these tips...
So, you’ve just submitted an application for a car loan.
Buying a car is a momentous moment, but it can also be a costly one. With new cars often selling for tens of thousands, many Kiwis are making smarter financial decisions and deciding to buy used instead.
If you’re thinking about joining them, this may feel daunting. How do you know you’re getting a good deal? Or that you’re not buying something that will break down as soon as you pull into your driveway? Alongside knowing your rights, the key, if you’ll pardon the pun, is planning, preparation, and some helpful information.
Still not feeling confident out on the used car lot?
Don’t worry! Today we’re helping take some of the pressure off of you and your bank account, with our 9 step guide to buying a used vehicle that will stand the test of time and hopefully more than a few iconic Kiwi road trips.
- Working out exactly what you need.
- Setting a budget, and sticking to it.
- Weighing up your finance options.
- Finding the best car for you.
- Taking it for a test drive.
- Running background and mechanical checks.
- Completing the paperwork.
- Insuring your new set of wheels.
- Transferring ownership.
To start, let’s take a look at what you actually need...
1. What do you need?
Before you start searching for a car, you need to know exactly what you’re looking for.
As well as any little extras you’d love to have.
Are you constantly running the kids to and from sports practice, and sleepovers with friends? If so, it’s unlikely a single cab utility will fit your needs. A people mover or van might be a better fit.
On the other hand, if you work in the trades or need to tow a trailer or cart around for work, then a hatchback won’t make much sense either. A ute or four-wheel drive could be more your size.
To make this process easy?
Write down where and how your next car will be used, such as:
- What will your car be used for?
- Is it just to get you and your family around town?
- Will you be using it for work, too?
- Are you planning on sticking to the tarmac, or are off-road adventures more your style?
While you’re at it, look into:
- Fuel economy ratings
- Engine size
- Safety considerations
Remember, most cars will get you from A to B. It’s the ones that do so safely, securely, and comfortably that you want on your shortlist. With your requirements in hand, it’s time to...
2. Set yourself a realistic budget
Everyone has a budget.
Some of you may have a lot to spend, while others will want to get the best bang for their buck.
Either way, it’s important to land on a realistic budget for your next vehicle early on. With many Kiwis struggling to juggle their debts, splashing out isn’t always the best idea. So work out how much you can afford, write it down, and stick to it.
Tip! When working out your budget, get a few trade-in quotes on your existing car. This could be used to bump up your budget or to lower the amount you’ll have to borrow.
3. Find the best deal on car finance
Choosing the right car is important.
That said, shopping around and choosing the best financing options is just as crucial.
With the way car finance works, it pays to compare your options. Weigh up things like:
- The terms and conditions.
- Interest rates.
- Fees and charges.
To be in the best place to negotiate on your new car, you need to be able to seal the deal and have your money ready to go. To do this, you need to get your personal loan approved and funded before you start the search so you’re ready to buy as soon as the right one comes along.
Tip! Before you apply for a loan, improve your credit score in order to land a better deal.
4. Do the legwork
So far you’ve:
- Decided on your next car’s must-have features.
- Worked out how much you can afford to spend.
- Applied for, and received, your financing.
Now it’s time to find the car you’re looking for. There are a lot of options out there. You could go through a local car dealership, or browse any number of websites that sell used cars online in New Zealand.
To start, give these a look:
- AA Motoring
- Auto Trader
- Trade Me
When shopping for your car, keep these thoughts in mind:
- Price isn’t the only factor, so compare as many vehicles as you can that boast similar features.
- While you’re at it, look up any issues a make or model may suffer from with a quick Google search.
- If a deal is too good to be true, it usually is.
At the end of the day? Stay informed, do some research, and look at the fine print. A cheap car may be a great bargain, but it can also come with a whole host of issues that could cost you more in the long run in servicing and repairs.
Tip! These checks are doubly important when buying privately, as a private seller doesn’t have the same obligations as a registered trader.
5. Take the car for a spin
With the homework out of the way, you should have a list of potential cars that suit your needs.
Now comes the fun part: taking them for a test drive. When you finally settle in behind the wheel, be sure to check for the following things:
- Is it comfortable?
- How does it feel when you’re driving?
- Can you easily adjust the seats and steering wheel, read all the different gauges, and see across the dashboard?
- Do you have enough visibility and can you adjust the mirrors easily?
- How is the tyre quality, and are there any dents, scratches, or other obvious defects?
- Is the registration label and warrant of fitness visible on the windscreen of the vehicle, and are both current?
- Does the vehicle’s insurance cover you the moment you drive away?
6. Carry out a background and mechanical check
Whether you’re buying publicly or privately, obtain a Vehicle Information Report before you complete any vehicle purchase. This report will tell you a lot of important information like:
- Who currently owns the car.
- If it has ever been reported stolen.
- Whether the current owner still has it on finance, or whether a bank has security over it.
- If it has been marked as flood-damaged or having had a tampered odometer.
- Its fuel rating.
- Any unpaid road user charges.
This report will help you make an informed decision about the car, and ensure you’re not caught out by any nasty surprises. The last thing you want is a repo man knocking on your front door a week later, telling you that they’ll be taking your new car.
From here? Arrange for an accredited inspector to give the car a full mechanical check, so you’re not caught out buying a dud. This process will usually uncover things that you might have missed from a simple visual inspection.
The investment required to let a professional uncover any serious defects the car might have is a far better option when compared to the stress you can face if you find a problem once you’ve already signed on the dotted line.
Make sure you let them know of anything you thought might be a problem on your test drive. If the inspection uncovers a serious fault, remember that you don’t have to buy the car - you can, and probably should, walk away.
7. Do your paperwork
Paperwork is never all that exciting.
However, getting your agreement with the seller in writing is super important.
Ensure your written agreement covers the basics, such as the agreed price, how it will be paid, as well as the names of both parties and their signatures. It should also include a declaration that the car does not have anyone else with a claim to it, and that it’s subject to successfully qualified inspection.
Don’t trap yourself into buying a lemon!
8. Don’t forget to insure your car
Before you drive away, you need to make sure the vehicle is insured.
Failing to insure your car right away, even before closing the deal, puts you at risk of losing it as soon as you hit the road. While the chances are slim, an accident on the way home isn’t just dangerous, but could also see you out of pocket.
You might also want to consider an alarm or an immobiliser if the car doesn’t already have one. These offer an extra layer of protection against thieves getting a hold of your investment. They can also lower your insurance premium, too!
9. Transfer the car ownership
Money may have changed hands, but the car isn’t officially yours until you transfer ownership.
To complete this process, you’ll need to fill out a MR13B form and take this into the nearest New Zealand Transport Agency. You can also do this online via the NZTA, which is much easier than carrying around a paper form.
Simply have the seller complete a MR13A, while you fill out a MR13B.
The transfer process is relatively straightforward. You’ll need to provide proof of identification such as your driver’s licence, or another form of approved ID that contains your full name, date of birth, and signature.
New Zealand law states that you have seven days to complete the transfer. This prevents both you and the seller from wearing each other's fees, charges, or traffic fines. Your new Certificate of Registration (rego) should arrive by post within 10 working days.
Oh, and keep the rego certificate in a safe place along with the rest of the vehicle's documents!
Buying a used vehicle doesn’t have to be difficult
Choosing to buy used when looking for your next vehicle is a super-smart financial decision, and with the tips we’ve outlined above it doesn’t have to be stressful either. A little research, planning, and common sense will ensure you get a great car, at a great price, and save more than a few cents in the process.
Enjoy your new car!
Want to know your options?
Try our personal loan calculator.