Add-ons when you buy a car on finance: your rights
When you buy a car on finance you may be offered extras, often added to the loan.
When you buy a car on finance you may be offered extras such as GAP insurance, mechanical breakdown insurance, loan repayment cover or a warranty, often added to the loan.
Add-ons like these are optional when you arrange finance through CarPow, and you can buy cover elsewhere. A lender can make reasonable insurance a loan condition. You can also cancel a consumer loan within a short cooling-off period after you receive the disclosure statement.
Before you agree, ask what each extra covers, its total cost with interest if it's added to the loan, and how you'd cancel it.
What add-ons might you be offered?
GAP insurance
Covers the shortfall between your car insurance payout and what you owe if the car is written off or stolen.
Who provides it: An insurer.
GAP insurance guide
Mechanical breakdown insurance (MBI)
Pays for some repairs after an unexpected mechanical or electrical fault.
Who provides it: An insurer.
MBI guide
Loan protection (credit or payment protection insurance)
Helps with loan payments if you're sick, injured or made redundant, depending on the policy.
Who provides it: An insurer.
Check the policy for who is paid and when.
Repayment waiver
The lender agrees to waive some of what you owe if certain things happen. A lender "GAP-style" waiver covers a shortfall after a write-off.
Who provides it: Your lender, not an insurer.
Ask the lender for the terms.
Extended warranty
Covers some repair costs, usually after or alongside the manufacturer's warranty.
Who provides it: A dealer, lender or warranty provider.
See "Can you cancel an add-on on its own?" below.
Other extras
Things like roadside assistance or excess cover.
Who provides it: Varies.
Ask what's included and what it costs.
Many of these can be added to your loan. If they are, you pay interest on them.
Do you have to buy them?
Add-on insurance such as GAP, mechanical breakdown and loan protection is optional when you arrange finance through CarPow. Separately, a lender can make reasonable insurance a loan condition, for example comprehensive car insurance on the vehicle. Your loan documents will say if yours does.
The law says lenders can't impose unreasonable insurance requirements and must give you a copy of the terms before insurance is arranged.
Lenders must make reasonable inquiries before arranging insurance with a loan, such as whether you already have cover. CarPow is a broker, not the lender. We also have our own obligations, including giving you accurate information.
Consumer NZ points out that you can shop around for insurance. You don't have to buy what's offered at the car yard.
What must you be given before you sign?
A disclosure statement for the loan
It shows the total cost, the fees and any extras added to the loan.
The terms of any lender add-on
If the lender arranges insurance, an extended warranty or a repayment waiver with the loan, it must give you a copy of the terms before it's arranged.
Paperwork for an extended warranty sold with the car
Consumer Protection says the seller must give you a written copy, a comparison with your Consumer Guarantees Act rights, and a summary of your cancellation rights.
Read these before you sign. Ask about anything you don't understand.
Can you cancel the loan? (cooling-off)
You can cancel a consumer loan by telling the lender. You have at least 5 working days after you receive the disclosure statement, and longer if it was emailed or posted to you (Consumer Protection says 7 and 9 working days). If you weren't given disclosure, you can cancel at any time.
If you keep the car, you'll need to pay its cash price. Consumer Protection says you have 15 working days to do that. If you haven't taken the car, you may be able to cancel the purchase too.
Can you cancel an add-on on its own?
Breakdown insurance and extended warranties
The Commerce Commission's 2021 review said MBI bought with a car is, in most cases, an 'extended warranty' under the Fair Trading Act. If so, you can cancel within 5 working days of getting a copy of the agreement and get a full refund of what you paid for it. Check the cancellation section of your policy.
Insurance policies (GAP, MBI, loan protection)
Each policy has its own cooling-off period. The Commerce Commission's 2021 review found some insurers gave a pro-rata refund if you cancelled later, while other insurers' documents didn't say. Check the policy wording.
From 5 December 2026
From 5 December 2026, for loans entered into from that date, a new law lets you cancel a repayment waiver or extended warranty offered by your lender within 5 working days of receiving the disclosure statement, unless the lender reasonably requires it. This includes lender 'GAP-style' waivers. It generally doesn't cover GAP or breakdown insurance policies from an insurer, which have their own cancellation terms. Correct as at 26 September 2026.
What happens if you pay off the loan early?
If you repay your loan early, the law gives a proportionate refund for some products financed under the loan, mainly loan repayment (consumer credit) insurance arranged by the lender, and repayment waivers or extended warranties provided by the lender. Refunds for GAP and breakdown insurance depend on the policy terms. Ask the lender and insurer how any refund is worked out. A refund usually reduces your loan balance rather than being paid to you in cash.
What did the Commerce Commission's 2021 review find?
In its 2021 review of motor vehicle financing and add-ons (data for the three years to March 2020, five insurers), the Commerce Commission found that car dealers sold 94% of mechanical breakdown insurance policies, 77% of GAP policies and 42% of credit and payment protection policies issued by the insurers it reviewed.
It found that in some cases the total payable on a loan was more than double the price of the vehicle.
Claims were made on about 1% of active GAP policies and 22% of active MBI policies; the average payouts were $2,925 (GAP) and $1,246 (MBI), against estimated average retail premiums of $518 and $1,047. These are industry-wide figures from 2018â2020, not current, and not a guide to any one policy. Source
Questions to ask before you agree to any add-on
- Is this optional? If the lender requires it, why?
- Do I already have cover that does the same thing, such as income protection, car insurance or my Consumer Guarantees Act rights?
- Could my job type, residency or age stop me from claiming?
- What's the total cost, including interest, if it's added to the loan?
- What are the main exclusions and limits?
- How long does cover last compared with my loan?
- How do I cancel, by when, and how is a refund worked out?
- Who is the insurer or provider?
- Does the person selling it earn commission?
If something goes wrong
If you have a complaint about CarPow, please contact us first. If we can't resolve it, you can go to our free, independent dispute resolution scheme: Financial Services Complaints Ltd (FSCL), member number 7632. For a complaint about a lender or insurer, contact them first, then their dispute resolution scheme.
How CarPow approaches add-ons
Insurance is optional. If you choose any cover, before your loan documents are sent you'll confirm in your CarPow customer portal that you understand it's optional, that you've received and read the policy terms and documents, and that the cover suits your needs. The total insurance cost will be added to your loan and you'll pay interest on it. Your loan documents show the cost of each product before you sign.
To see how lenders look at your application, read how we carry out an affordability check and how to finance a car in New Zealand.
Frequently asked questions
Do I have to buy insurance to get car finance?
Add-on insurance such as GAP, mechanical breakdown and loan protection is optional when you arrange finance through CarPow. Separately, a lender can make reasonable insurance a loan condition, for example comprehensive car insurance on the vehicle. Your loan documents will say if yours does.
Can I cancel my car loan after signing?
You can cancel a consumer loan by telling the lender within 5 working days after you receive the disclosure statement (longer if it was emailed or posted), or at any time if you weren't given disclosure. If you keep the car, you'll need to pay its cash price. Consumer Protection says you have 15 working days to do that. If you haven't taken the car, you may be able to cancel the purchase too.
Can I cancel GAP or breakdown insurance but keep the loan?
GAP and breakdown insurance policies have their own cancellation terms, so check the policy wording. The Commerce Commission's 2021 review said MBI bought with a car is, in most cases, an 'extended warranty' under the Fair Trading Act. If so, you can cancel within 5 working days of getting a copy of the agreement and get a full refund of what you paid for it. From 5 December 2026, for loans entered into from that date, a new law lets you cancel a repayment waiver or extended warranty offered by your lender within 5 working days of receiving the disclosure statement, unless the lender reasonably requires it. This includes lender 'GAP-style' waivers. It generally doesn't cover GAP or breakdown insurance policies from an insurer, which have their own cancellation terms. Correct as at 26 September 2026.
Do I get money back on add-ons if I pay my loan off early?
If you repay your loan early, the law gives a proportionate refund for some products financed under the loan, mainly loan repayment (consumer credit) insurance arranged by the lender, and repayment waivers or extended warranties provided by the lender. Refunds for GAP and breakdown insurance depend on the policy terms. Ask the lender and insurer how any refund is worked out. A refund usually reduces your loan balance rather than being paid to you in cash.
What changes for add-on cancellations on 5 December 2026?
From 5 December 2026, for loans entered into from that date, a new law lets you cancel a repayment waiver or extended warranty offered by your lender within 5 working days of receiving the disclosure statement, unless the lender reasonably requires it. This includes lender 'GAP-style' waivers. It generally doesn't cover GAP or breakdown insurance policies from an insurer, which have their own cancellation terms. Correct as at 26 September 2026.
Where can I complain about an add-on?
If you have a complaint about CarPow, please contact us first. If we can't resolve it, you can go to our free, independent dispute resolution scheme: Financial Services Complaints Ltd (FSCL), member number 7632. For a complaint about a lender or insurer, contact them first, then their dispute resolution scheme.
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About this guide
Embeth Limited t/a CarPow is a registered financial service provider (FSP655251). We are a broker, not a lender. Information in this guide is general and not financial advice.
Lending criteria apply. Approval not guaranteed.
Insurance cover is subject to the policy terms, conditions and exclusions.
Correct as at 26 September 2026. The law on cancelling some lender add-ons changes on 5 December 2026.
Sources
- Commerce Commission, Motor vehicle financing and add-ons review, 10 November 2021.
- Commerce Commission, Selling extended warranties (Fair Trading Act ss 36Tâ36V).
- Consumer Protection, Getting a loan for your car.
- Consumer Protection, Credit Contracts and Consumer Finance Act.
- Consumer Protection, Credit contracts: plain English.
- Consumer Protection, Warranties and Car sales contracts and warranties.
- Consumer NZ, Finance at car yards: what you need to know.
- Credit Contracts and Consumer Finance Amendment Act 2026, s 27A and the repayment waiver definition.
- Credit Contracts and Consumer Finance Act 2003, ss 9C, 27, 51â53, 69 and 70, and regulation 4AB of the Credit Contracts and Consumer Finance Regulations 2004.
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