If you’re thinking about buying a car, you’ll need to decide whether you pay for it upfront or go down the finance route. But what is the best option and are car loans worth it? It all comes down to your individual circumstances!
To make your decision easier, we’ve compiled a list of all the car loan advantages and disadvantages. Read on to learn the answer to ‘are car loans worth it?’ or speak to our team of brokers if you have any questions.
Borrowing to finance a car can definitely be a worthwhile option. But there are a few factors to consider including your needs and financial situation. To decide if this finance option is worth it for you, we first need to weigh up all the pros and cons of car loans.
What are the advantages of a car loan?
No upfront cost
The most obvious advantage of getting a car loan is being able to purchase the car right now without paying the full price all at once. Instead, you can pay for the car over a set period of time in weekly, fortnightly or monthly instalments. This can save your bank account from taking a significant dent. And means that you have savings to fall back on in case of an emergency.
Builds a credit history
Does financing a car build credit? It sure does! As long as you pay your repayments on time and don’t default on the loan, getting a car loan can help you build a good credit history.
If you’re looking at business vehicle finance, you can claim tax deductions on both the running costs of the car and the interest.
What are the disadvantages of a car loan?
Interest and fees
This is probably the biggest reason why people ask whether car loans are worth it. When you get a car loan, you will be required to pay interest and additional fees. The cost of these will depend on the lender, loan amount, length of your loan, and your financial situation and history.
Risk of default
Because the car is used as security for the loan, you’re at risk of having the car repossessed if you continuously fail to make loan repayments. If this happens, your credit score could also be negatively affected.
Cars depreciate in value over time. So by the end of the loan term, there’s a chance the amount you owe may be higher than the actual market value of the car (because of the added interest). However, if you opted for a variable interest rate, you may be able to avoid this by making early, additional repayments.
So, is it better to finance a car or pay cash?
It completely depends on your financial situation. If you buy a car outright, you completely own it and you save on interest and other fees. But for a lot of people, dropping thousands of dollars on a car is not feasible – especially with the cost of living soaring in Australia. A loan can make buying a car more achievable as you pay for it in weekly, fortnightly or monthly instalments. We highly recommend speaking to an experienced vehicle finance broker to discuss all your options.
How do I get a car loan?
You can either apply for a car loan directly from a lender or go through a personal loan broker. But before you start the application process, you need to ensure you meet certain eligibility requirements. Each lender will have different eligibility criteria, but there are a few basic requirements that are standard across the industry.
To be eligible for a car loan, you typically will need to:
Be 18 years of age or older
Have a regular income
Have not filed for bankruptcy
Be a permanent Australian resident or relevant visa holder
The documents you need for a car loan application will depend on the lender, but you should have the following as a minimum:
Copy of your passport or identity document
Proof of income and employment details
Proof of address
Assets and liabilities
Registration details of the vehicle
Turn to Oceania Finance
Getting a car loan through a finance broker can save you time, hassle, and stress. Not only will they take care of the application process for you, but they’ll negotiate with lenders to get loan terms that best suit your needs and situation.
Ready to apply for a car loan? Enquire online today. And if you have any related questions to ‘are car loans worth it?’, please don’t hesitate to get in touch with Oceania Finance’s personal loan brokers.
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