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A car loan is a personal loan used to purchase a vehicle. You borrow a lump sum from a lender (bank, finance company, or dealership) and repay it with interest in regular monthly instalments over a fixed term, typically 1 to 7 years. The car often serves as security for the loan, which can lower your interest rate but means the lender can repossess the vehicle if you default.

A balloon (also called a residual or guaranteed future value) is a lump sum payment due at the very end of the loan term. It reduces your regular monthly payments because you are only repaying a portion of the loan principal during the term — the balloon portion sits untouched until the final month. It is common in NZ car finance, especially through dealerships.

With a balloon, your monthly payments are lower and more affordable, but you pay more total interest over the life of the loan because the principal is reduced more slowly. You also face a large final payment at the end. Without a balloon, your monthly payments are higher, but you own the car free and clear at the end of the term and pay less total interest. The right choice depends on your cash flow and whether you plan to trade in or keep the vehicle.

As of 2026, secured car loan rates in New Zealand typically range from about 7% to 15%, depending on the lender, your credit history, and whether the car is new or used. Dealership finance can offer promotional rates as low as 3–5% on new cars. Unsecured personal loans for cars are usually more expensive, with rates from 12% up to 25% or more.

A secured car loan uses the vehicle as collateral — the lender registers a security interest (PPSR) over the car. This usually means a lower interest rate, but the lender can repossess and sell the car if you stop making payments. An unsecured loan does not use the car as security, so the lender cannot automatically repossess it, but interest rates are generally higher because the lender takes on more risk.