End of Financial Year Sales: A Great Deal or a Debt Trap?

As we approach the end of the financial year, retailers and car dealerships are rolling out big sales, urging Kiwis to "buy now, pay later" or lock in "limited-time" finance deals. But before you sign up for a new car loan or upgrade your ride, let’s take a closer look at what’s happening in the credit market - and why it pays to pause before borrowing.

More Kiwis Taking Out Car Loans - But at What Cost?

According to the latest Centrix Credit Indicator Report (February 2025), auto loan applications have surged despite the challenging economic climate. With household lending up 16.5% year-on-year and car loans making up a significant portion of this, it’s clear that many people are taking on new debt.

But here’s the catch:

• ‍Personal loan arrears are rising - 9.7% of personal loans were overdue in January, climbing month-on-month.
• ‍More people are in financial hardship - 14,700 accounts are flagged as struggling, the highest level since mid-2020. 
• ‍Defaults are increasing - Consumer credit defaults have jumped 42% due to economic pressures.

What does this mean for you? If you're thinking about financing a new vehicle, now is the time to double-check the true cost of borrowing and assess whether it's the right decision for your financial wellbeing. Right now, household debt in New Zealand is at 165% of disposable income, impacting not just individuals but the financial well-being of communities and the wider economy.

The Emotional Side of Car Buying

Car dealers are skilled at making you feel like you need that upgrade. Flashy ads, test drives, and promises of “easy” finance can make it tempting to jump in. But remember:

• New debt can feel great today but bite back tomorrow.
• Low weekly repayments can add up to big long-term costs.
• Borrowing when under financial stress can lead to debt traps.

Instead of rushing into a finance deal, take a breath and check in on your financial situation first.

5 Questions to Ask Before Getting a Car Loan

1. Can I truly afford this? - Beyond the weekly repayments, factor in insurance, fuel, servicing, and unexpected costs.  
2. What’s the total cost? - A lower weekly payment often means a longer loan term and higher total interest paid.
3. Am I already managing debt? - If you have existing debt, adding a car loan could stretch your budget too thin.
4. What happens if my financial situation changes? - Could you still afford the loan if interest rates rise or income drops?
5. Is this a want or a need? - Could a more economical car, public transport, or car-sharing be a smarter option?

Smart Moves Before Borrowing

• ‍Check your budget - Make sure your finances allow for a car loan without putting pressure on essentials.
• ‍Compare finance options - Look beyond dealership offers. Banks, credit unions, and ethical lenders may offer better deals.
• ‍Pay off existing debt first - If you already have high-interest debt, clearing it first could free up more cash flow.
• ‍Boost your credit score - A stronger credit profile may help secure lower interest rates and better terms.

Debt should be a tool - not a trap. The best financial decisions aren’t made in the heat of a sale but with a clear head and a long-term vision. Before taking on more debt, ask yourself: Is this moving me towards financial wellbeing, or just adding more stress? 

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