What finance is right for you?
Looking for a car is a wonderful experience you could learn a lot from. First, there is a wide choice of new and second hand cars from domestic and import brands, and a multitude of classes and market segments you’ll be browsing to get to your ideal car. Then, there’s learning about different drivetrains, safety systems, car care and other aspects of owning an automobile. Sadly, there’s one buzzkill to all that excitement, and that is financing your purchase.
If you’re into buying a new car, there are slim chances that you’ll storm into the dealership with a bag full of cash and drive out of it in big style like in the movies. Rather than that, every reasonable human being will choose some type of financing and get to their car via a multitude of sensible monthly payments. Of course, that begs the question: What finance is right for you? To help you with this important decision, we’ll choose the right finance that works the best for you.
Cash payment
First things first, the least popular yet the most desirable option of them all is making a single payment in cash and going home in a new car. We advise this method only in case of buying second hand cars after months spent saving the money. Even the cheapest new vehicles cost around $20,000 which makes loaning the only truly reasonable option for the most of us.
If you don’t see the drama about buying your car in hard solid cash, you’ll find the rest of the article quite boring and unnecessary, and we applaud you for being able to buy a car without committing yourself to a bank or other financial outlet.
Financing deals
The first one to offer you a financing deal on your car will be the dealer. While that sounds like the least amount of fuss, your car will probably cost you a bit more. The reason for that is because dealerships make these deals to benefit them rather than for the buyer. A part of your monthly rate will be going directly to the dealership and won’t have anything to do with the price of your car, so there’s no real reason to accept to these terms.
Fortunately for you as a prospective car buyer, Motor Scout offers financing deals, as well as numerous banks and private companies specialised in car loans. By wisely comparing dozens of offers and paying close attention to their terms and conditions, you’ll sure find a deal that suits you the best.
The first thing people look for are low interest rates, but our advice is to browse flexible car loans that give you freedom to determine how and when you can pay. If you can, go for car loans that enable you to pay extra whenever you can. Flexible loans might not have the lowest interest rates compared to fixed loans, but being able to make extra payments when you can afford to or ending the loan with a single payment is the real money saver.
Being kept in the loan for a predetermined amount of time will cause you to pay more in fees and interests. On the other hands, flexible loans will potentially save you some money in the process. In short, the rule of the thumb is that you’ll always end up paying more if you take a loan that lasts longer. The monthly rates might be lower, but accumulated interests and annual fees are what makes the final amount larger.
Car leasing
Another option is to lease a car, in which case you’ll have lower monthly rates, but when you finish your leasing deal, you won’t be the owner of the car you’ve driven for years. A good thing with car leasing is the choice of commitment. If you want a new lease car when the contract has expired, you just replace it with a new deal, but if you wish to keep the car, all you need to do is to pay a predetermined buyout fee.
There’s also novated lease, a form of leasing in which an employer or a business leases a vehicle on behalf of an employee, while the payments the responsibility of the employee. The payments are taken from your pre-tax salary, meaning that there’s a financial benefit, but this form of leasing is also taxable. Novated lease is subjected a fringe benefit tax. You can calculate this tax by taking 20% of the vehicle’s cost and multiplying it by the maximum tax rate.
This type of lease has a few risks involved, the biggest one being job security. To get a car via novated lease, you need to have a constant employer and a secure job. A lease is signed to a certain period, and what will happen if you need to switch jobs for one reason or another? Anyway, if you have ideal conditions for taking up novated lease, you should speak to your employer about this possibility.
The conclusion
Whether you decide to go for a car loan or leasing, the most important step is to carefully examine all options. By going through terms and conditions and calculating hidden costs, you’ll be able to get a clearer picture of what option works the best for you. Again, our advice is to go for a flexible car loan which you can pay out earlier, because it will save you the most money in the longer run, and you won’t be under pressure if you’re switching between employers. However, if you meet all criteria for novated lease, you should explore this option as it’s a pretty rewarding one.
Finally, if you’re an enthusiast whose dream car doesn’t cost much, but rarely ends up on the online ads, you should save up and have the money ready once it pops out of nowhere and straight into your arms. Even then, you can opt for a car loan, but as time is essential in situations like these, it’s best that you have the cash ready.
