Buying your very first car is scary, exciting, and a step into adulthood. Even owning a beaten-up old wreck gives young people freedom and a sense of achievement. It comes with a massive financial learning curve.
Long before you go car shopping you need to work out both what you need and what you can afford to buy. That includes what the car will cost to run, which includes insurance, registration, Warrant of Fitness (WOF), repairs and way more than just petrol.
If you don't have the cash to buy your car or you want a better vehicle than you can afford, you will need to borrow money. The bank of mum and dad can be good. Not everyone has that opportunity or wants to go cap in hand to their parents.
Banks and credit unions have the next best rates, and you are not then restricted on where you buy the car if they agree to lend. Many buyers simply take whatever finance deal is offered through the car yard.
It's advantageous to sort out your finance before you go shopping for a car, says Financial Services Federation New Zealand (FSF) executive director Lyn McMorran. Your first car is an emotional purchase and it's too easy in a car yard to glaze over the financial detail.
When you apply for finance, make sure you ask what the total cost of the loan will be, says McMorran. If the interest rate and fees are very high a $10,000 car, for example, may cost $20,000 when you've finished paying for it.
As a borrower you're protected by the Credit Contracts and Consumer Finance Act and the Responsible Lending Code. FSF members sign up to a code of conduct. Less reputable lenders will push the boundaries and sometimes get away with it.
The pushier a car dealer is, the more likely that they're trying to sell you something that isn't right for you, says McMorran. "Take time, research (and) don't rush into the first deal that comes along." After all, there are four million cars in New Zealand to choose from.
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McMorran recommends taking out credit insurance that covers your payments should you fall ill or lose your job. This insurance sometimes has a bad rap, so do make sure you read the policy to know what you're covered for.
Encouraged by TV advertising, parents are increasingly keen on their children buying a car with a high safety rating. That doesn't always cost a fortune. I searched Trade Me this week and did find some affordable four- and five-star rated vehicles for $4000 or less.
The other big issue with your first car is getting it insured. Full cover for your vehicle and anything you might damage can be expensive and you might need to choose third-party cover, that only pays to repair the other vehicle, which at least saves your bacon if you hit something expensive.
Don't fall the common mistake of insuring it in your parents' name. That's fraud and invalidates your insurance cover. Insurance companies aren't stupid. They will guess if a parent has suddenly insured a young person's car in their name and will start doing some research should there be a claim.
If an insurance investigator finds that the parent was listed as the main driver on a car used primarily by the child, whoever owns it, the claim will be declined. If caught, you will struggle to get insurance ever again. No one ever believes me when I explain this to people, yet it happens.
Finally, a car is not an investment, except if it enables you to earn money you wouldn't otherwise. That set of wheels will go down in value year after year. You could lose almost all your remaining investment if the car fails a Warrant of Fitness (WOF) for something serious or if you only have third-party insurance and you cause a crash, or the vehicle is stolen.