Should you finance your next car?

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Should you finance your next car?

Oxcel Finance
January 16, 2024

The decision to finance your next car is a major one. If you decide to finance your new car, you'll have a large loan for an item with you for years and many miles. When considering whether or not to finance your next car, it's essential to consider the trade-offs of both options: pay cash or take out a loan.

There are benefits and consequences to financing your next vehicle. If you take out a loan, you'll have full ownership of the vehicle and a motor payment that is not taxable. However, if you finance your next car through a dealership, they will offer much better financing terms and lower monthly payments than you would be able to get on a cash purchase.

Advantages of financing a car in Australia

The advantage of paying cash is that the car will not be worth much at the end of the loan period. You'll save yourself around $125 in interest payments per month. This is an amount you could use towards a new car purchase or, if you need to, put it into a savings account. Not only that, paying cash means you won't pay any tax on the money you are saving until your loan term finishes.

You don't have to worry about selling the motor at the end of your loan term or making a large payment. If you choose to fund your new motor, you must sell it before the loan ends. You can sell it on Trade Me or other used motor websites and make a payment equivalent to the vehicle's current value. The model is simple: subtract the price you paid for it from its current value and pay that amount.

Your next motor will be entirely yours. If you fund your next vehicle, it is your responsibility to transfer the title into your name at the end of the loan term. If you choose to pay cash for your next motor, someone else will own it until you read the title and make a payment on it.

You're not locked into a specific vehicle with a loan purchase. With financing, you can trade in or sell the vehicle when it's convenient for you, even after the loan term has ended if you want.

Lending costs are low for many lenders.

If you pay cash for your motor, your finance costs will typically be higher than the amount you save on interest with a car loan. If you go to a lender to finance your next motor, they will usually have more competitive rates and low monthly payments. Because finance is expensive for them, many lenders will offer promotional rates for specific periods where you can qualify for a lower interest rate and lower monthly payments.

The choice between paying cash for your next motor or financing is one that you must decide on for yourself. The benefits and consequences of both options of car loans are different for each person, and, ultimately, you will be deciding your financial future.