Month: February 2026

When you’re considering buying a car, the price of the vehicle isn’t the only number that matters. Inflation and the Official Cash Rate (OCR), which the Reserve Bank of New Zealand (RBNZ) sets, play a significant role in determining car loan interest rates. Knowing these factors can help you make more informed decisions when looking for a car loan.

The Official Cash Rate (OCR) is the benchmark interest rate set by the RBNZ to manage inflation and economic activity. It influences how much it costs for lenders to borrow money.

Here’s how it affects you:

• When the OCR goes up, lenders pay more to borrow money, and they usually pass on that cost to customers by raising interest rates on loans.
• When the OCR goes down, borrowing costs for lenders fall, and they often lower interest rates, making loans cheaper for borrowers.

Inflation is the rate at which prices for goods and services increase over time. In New Zealand, the RBNZ targets inflation at 1–3% over the medium term. Reserve Bank of New Zealand

• If inflation is too high: The RBNZ may increase the OCR to cool spending. Higher borrowing costs reduce demand for loans, slowing price rises.
• If inflation is low or stable: The RBNZ may lower the OCR to encourage borrowing and spending, boosting economic activity.

This balancing act, curbing inflation when it’s hot and easing when it slows, directly impacts your car loan interest rate.

When the RBNZ reduces the OCR:

• Lenders face lower funding costs: With a lower OCR, lenders pay less to borrow money, giving them room to reducing lending rates on car finance.
• Consumer borrowing gets cheaper: Lower interest rates encourage more people to take out loans.

But it’s not always that simple:

• Inflation expectations affect long-term rates, not just current inflation.
• Other factors matter too, like wholesale interest rates, competition, and economic confidence.

If inflation is cooling and the OCR is falling:

• Car loan interest rates may become more affordable.
• Repayments could be lower.

If inflation rises and the OCR goes up:

• Borrowing costs usually increase.

Inflation and OCR adjustments are significant factors influencing car loan interest rates. Knowing how they work together can help you make a more informed decision about when and how to finance your next vehicle. If you’re looking for financial advice or help with budgeting, organisations such as MoneyTalks can provide you with free and confidential information. Call them on 0800 345 123 or visit their website to find out more.

Thinking about buying a car? Oxford Finance offers flexible, competitive car finance options. Our team are available to tailor a solution to suit your budget and your goals. Use our loan calculator to estimate your repayments and apply online, or, get in touch with us today to explore your options.