Are Car Loans Worth It?

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.

Overview:

• What is the difference between car loans vs car finance?
• Are car loans worth it?
  • What are the advantages of a car loan?
  • What are the disadvantages of a car loan?
  • Does a car loan hurt your credit?
• Is it better to finance a car or pay cash?
• How do I get a car loan?
• Car loan FAQs

What is the difference between car loans vs car finance?

There are actually a few different ways financing a car can work. Before we dive into car loans, it’s important to make a distinction between car loans and car finance. While you might hear these terms being used interchangeably, car loans refer to borrowing from a bank or loan provider. Car or dealer financing, on the other hand, is done through your dealership.

Here is a summary of the car loans versus dealer finance:

Is it better to finance or get a car loan?

Whether you choose to get dealer finance or a car loan depends on your preference, lifestyle, and financial circumstances. The main selling point of finance is convenience — you can bundle all your paperwork and transactions together. However, overall interest and fees can be higher. On the other hand, car loans may be more with it as it’s flexible, but searching, applying, and getting approval can take more time.

Are car loans worth it?

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 it’s worth it for you, let’s weigh up all the pros and cons of car loans.

What are the advantages of a car loan?

No upfront cost

The main reason people think car loans are worth it is that you can purchase a car 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 hit. You would also have extra 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, another advantage of a car loan is that it can help you build a good credit history.

Tax deductions

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.

Depreciation

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.

Does a car loan hurt your credit?

An application for a car loan will cause a small short-term decrease in your credit score, due to the lender performing a “hard inquiry check” on your credit. However, the impact will be minimal unless you miss repayments. Paying your loan back consistently over time can help your credit score improve in the long-term.

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.

At the end of the day, it’s important to understand exactly how to finance a car so that you know what to expect. Knowing the process and what to consider can help you decide whether a car loan is worth it for you.

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.

Eligibility

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

Required documents

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 about whether car loans are worth it,  don’t hesitate to get in touch with Oceania Finance’s personal loan brokers.

Car loan FAQs

What is the biggest mistake that first-time car buyers make?

As an exciting purchase, first-time car buyers often fall in love with the car before properly considering their finances and the state of the car. Avoid making this mistake by not purchasing the car straight away, and think about the purchase. Consider:

• Price
• Servicing and registration costs
• Running a PPSR check
• “Must-have” features vs “nice-to-have” features
• Test driving a few options
• Conducting a proper inspection

Is it bad to buy a car with finance owing?

Not necessarily, but it is considered quite risky. If you are considering buying a car with finance owing, ask your seller for the total amount owing, pay the lender directly, and obtain a letter of discharge. If an existing loan on a car is not paid off, the lender may repossess the vehicle.

Can I add a car loan to a mortgage?

Yes, you can consolidate a car loan into your mortgage. The common avenue for this is to refinance your current home loan or a home equity loan. Note that while this may reduce monthly payments, the loan term will be longer, potentially increasing the overall interest. You should do your research or speak to a financial advisor to ensure that it suits your personal and financial circumstances.

Are there any negatives to refinancing a car loan?

Because refinancing extends the loan term, you may end up paying more overall interest. There may also be additional costs for a new application, admin or establishment fee, or even prepayment fees.

What is the best time to buy a car?

Generally, the best time to buy a car is December, when dealers are trying to hit sales targets for the month, quarter, and year. Christmas and end-of-year sales are also running at this time. Other times to buy a car are EOFY and when a new model is about to be released. Just make sure you actually need a new car when you buy!