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. The classic cash vs finance debate comes down to your personal preferences and priorities.
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 financial situation and goals.
Pros of Paying Cash
The average Australian spends over $40,700 on a new car. If you happen to have this amount of cash upfront, you might be wondering if it’s a good idea to go ahead and spend it on a cash purchase to own your car outright without relying on a finance option.
If you’re leaning toward paying cash for a car, here are some benefits you’ll be able to enjoy, including the potential for monthly repayments to be a thing of the past:
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 or monthly payments.
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 or how your cash flow is impacted by loan repayment schedules.
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 amount or dealing with monthly repayments.
This flexibility is particularly appealing to the cash buyer who prefers control over their finances and may want to allocate funds toward another investment in the future.
The average Aussie 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 without committing to a finance option.
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 payment:
Requires Long-Term Saving
The average Australian has just a few thousand dollars in their savings account or cash reserve. 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 would you prefer to consider a finance option and drive away sooner?
It may also help to speak with a financial adviser who can help you evaluate whether paying upfront or spreading costs through car finance is a better fit for your overall budget and savings strategy.
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. A payment option like financing may expand your options.
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 personal loan, which may have a higher interest rate than a car loan or vehicle finance would have had.
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.
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 vehicle finance or car financing 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. Choosing the right loan term can also help you manage costs effectively over time.
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? Or maybe you’d prefer to use that excess cash to invest in other investment opportunities or even fund part of your business finance needs.
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 history, you might assume that financing a car is off the table for you and that paying cash is your only payment option. Keep in mind, though, that there are lots of options for bad credit car loans.
With a little research — or guidance from a trusted financial adviser — you can find an opportunity for bad credit vehicle finance that works for you, your credit history, and your budget.
Improve Your Credit Score
Financing a car also gives you a chance to build up your credit history in the long term.
Initially, your credit score might drop a bit when you take out a loan amount. However, as long as you make your timely payments, you can boost your credit and improve your finances.
As a bonus, this will make future loans — such as a home loan or another car payment — easier to come by as well.
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.
Cons of Car Finance
There are also a few downsides to car finance, 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 in monthly repayments, which can be frustrating to some borrowers and may reduce your cash reserve over time.
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 cost, 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 finance option for your needs.
Pay Cash vs Car Finance in Brisbane: Which Is Right for You?
When it comes to cash vs finance, there’s no one-size-fits-all answer — it really depends on your financial goals, how much cash upfront you can afford, and whether you want to preserve your cash reserve for other investment opportunities like a home loan or business venture.
Unless you happen to be a cash buyer with plenty of savings and no competing priorities, car financing is probably the better route for most Brisbane drivers.
Vehicle finance offers flexibility and allows you to secure a car without draining your savings. 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 — whether you’re making a cash purchase or looking for tailored finance tips, we’ve got your back.
Click here to apply for a bad credit car loan today in 10 minutes or less and find the best finance option for your needs.