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Financing Your New Car – How To Finance A Car The Smart Way?

Buying a car is easy, if you have a lot of money. Assuming most of us do not fall in that happy, carefree category, and have bills to pay, you might want to consider a few external as well as internal factors before you head-out to take a few test-drives.

Buying a car is one of the most important decisions you will take this year, especially if it’s your first. Making sure that you get a deal that leaves you feeling happy and satisfied with your first car ever, challenging, but not impossible.

The next question that you need to present yourself with is, how do you want to pay for your car. Again, assuming you don’t already have a few thousand dollars in your account, there are a few recommended finance options that you could consider, depending on your preferences.

Convenience is key: Dealer Finance

When you’re buying a car, the dealer that is providing the car might want to offer you a way to finance the car.  It is one of the easiest and the least cumbersome way to get your car financed. You just walk in to get your car, let your dealer know about your budget, how you want to pay and the amount of time required for you to pay it back, and BAM! The will provide you with available options that are suitable for you.

Also, if you want a better rate of interest, make sure you’re paying all your bills on time and have a good credit standing at the time of buying your car.

Most of the people might not know this, but dealers might also try to give you a higher rate of interest to get a profit for themselves. It is advised to stay vary of such scams and schemes that might cost you more than it should have.

Old is Not Gold: Car Lease

There is another way to finance your car when you don’t think you want to pay for it right now, or you can’t pay for it right now. Don’t buy the car!

No, we don’t mean you should drop everything and get back to public transport. We mean, you should try leasing a car. This could also be a good option if you like to have a new car every few years. Even though it is not considered a feasible option by most car buyers/leasers since it is relatively higher in price. The advantage of leasing a car and the disadvantage of leasing one is the same, you don’t own the car at the end of it. The advantage is, you won’t have an old model of a car and can easily get a better model or a better car leased when the current car starts to feel older.

You’re in Safer Hands: Loans

This is a more mainstream option that most people are aware of. Since loans are provided by financial organisations, most people tend to trust them more. The interest rates for a car loan can be determined keeping in mind your credit rating. There are different types of loans you can look at, from different institutions, depending on the interest rate offered by them.

A less complicated and cheaper version of a bank loan is peer to peer lending. These offer cheaper interest rates and could be advantageous to people who don’t have a high disposable income every week/month. The average rate of interest offered by Australian banks is 6.3% pa as of now. If you choose a secured loan, it means you have to provide some kind of security to the bank for the loan. In this case, interest rates are lower as compared to unsecured loans, where the interest rates could vary between 10%-20%.

A lot of people may argue that they would want to buy a car for cash.

However, buying a car for cash may or may not be the best decision. If you currently have enough cash to pay the car dealer, you can just pay the cash to him, take full ownership of the vehicle and then go on with your life without any worries of a loan repayment. A hassle-free transaction and a new car. Win-win?

Maybe not. Think about the options available for financing a car, you might be able to get some profit by investing your cash into a high yielding portfolio. It’s simple to calculate!

Just calculate the amount of interest you will pay over the years versus the amount you will get after a few years if you invest the money. If the income is higher than the expenditure, finance your car.

On the other hand, you might also want to think about the depreciating value of your car, that is, the value of your car in terms of money is going down. Your car is getting cheaper by the day, and when you plan to sell it, you might not even get half the price. Do you want to keep paying inflated rates for a depreciating asset? Probably not. As a rule for financial decisions, it’s almost always never a good idea to borrow money to spend on an asset that is depreciating.

Lastly, you might want to stay safe and avoid any fraudulent scams while you prepare for your new car.

So whether you want to buy a new car or sell your old car, always make sure to stay safe and only do transactions with trusted sources.

Depending on your priorities, you can now choose one of the finance options stated above to buy a new car.

Drive Safe!

Peter Christopher

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