Should I Pay Cash Or Finance My Car?
Buying a new car can be overwhelming, and there’s way more to this process than just picking the right paint colour. For example, you need to decide if you’re going to pay cash for your car or finance it.
If you’re having a hard time choosing between these two options, the pros and cons of each are broken down below. This information can help you make the right choice for your needs.
Pros of Paying Cash
The average Australian spends over $40,700 on a new car. If you happen to have this amount of cash at the ready, you might be wondering if it’s a good idea to go ahead and spend it to own your car outright.
If you’re leaning toward paying cash for a car, here are some benefits you’ll be able to enjoy:
No Loan Repayments
The most obvious benefit of paying cash for a car is that you don’t have to deal with any loan repayments.
As soon as you hand over the cash (or write a cheque), the car will be yours. This means you won’t have to worry about keeping track of another monthly bill.
More Flexibility
Paying cash also gives you more flexibility when it comes to what you do with the car. For example, if you want to sell it a year later, you can do so and pocket the money without having to worry about paying back the remainder of your loan.
Cons of Paying Cash
At the same time, there are downsides to paying cash for a car. Consider these cons before you move forward with a cash purchase:
Requires Long-Term Saving
The average Australian has just a few thousand dollars in their savings account. Furthermore, 22 per cent of Australians have less than $1,000 saved.
If this data resonates with you, how long will it take you — realistically — to save for a new or even a used car? Do you want to wait months or even years before you can buy a car, or do you want to get into one right away?
Car Limitations
If you’re dead set on paying cash, you’ll only be able to choose from a certain number of cars. That number will likely be smaller than you think, too. This is especially true when you add taxes and other fees to the equation.
Drained Rainy Day Fund
For most people, paying cash for a car will drain their savings funds. This means you’ll have very little — if anything — leftover should an emergency happen. As a result, you’ll have to use a credit card or take out a loan, which may have a higher interest rate than a car loan would have had.
Pros of Car Finance
In the same way that there are pros and cons to paying cash for a car, there are also pros and cons to taking out a loan and financing one. The following are some of the most noteworthy benefits of financing a car instead of buying it outright:
Access a Safe, Reliable Car Sooner
When you finance your car, you will be able to access a safe and reliable vehicle a lot sooner than you would if you paid cash.
The average person doesn’t have the amount of cash handy that they need to buy a nice and safe vehicle. They then end up settling for something subpar that probably isn’t as reliable as they’d like.
If you need to have total confidence in the quality and reliability of your car, financing may be a better choice. This allows you to get into a good car right away, even if you don’t have the cash handy to pay for it outright.
Use Your Savings for Other Things
If you’ve been saving for a while to buy a car, you may still want to consider financing.
Think about what else you could do with the cash you’ve saved up. Could you pay off other debts, for example, or put it toward repairs or improvements to your home?
You may also simply want to keep that money in your savings account so you’re prepared for a rainy day.
Options for All Credit Scores
If you have a low credit score, you might assume that financing a car is off the table for you and that paying cash is your only option. Keep in mind, though, that there are lots of options for bad credit car loans.
With a little research, you can find an opportunity for bad credit car finance that works for you, your credit score, and your budget.
Improve Your Credit Score
Financing a car also gives you a chance to build up your credit in the long term.
Initially, your credit score might drop a bit when you take out a loan. However, as long as you make your payments on time, you can boost your credit and improve your finances.
As a bonus, this will make future loans easier to come by as well.
Cons of Car Finance
There are also a few downsides to car finance as well, including these:
Interest Payments
When you finance a car and take out a loan, you will also have to pay interest. Interest is a fee — expressed as a percentage — that the lender charges in exchange for loaning you the money to buy a car.
Interest adds to the amount of money you have to pay back each month, which can be frustrating to some borrowers.
Loans Can Be Confusing
If you’ve never financed a car or taken out a loan before, you might be a bit confused by the jargon thrown around by your lender — secured vs unsecured, fixed vs variable interest rates, etc.
If you work with the right lender, you can avoid this issue. Partner with an organisation like Naked Loans, for example, and an expert will guide you through the process and help you choose the best loan for your needs.
Pay Cash vs Car Finance in Brisbane: Which Is Right for You?
Unless you happen to have a lot of cash lying around, financing your car is probably the best option.
Don’t forget that even if you have bad credit, you can still get a car loan if you work with the right lender. At Naked Loans, we specialise in bad credit car loans in Australia.
Click here to apply for a bad credit car loan today in 10 minutes or less.