You're planning to buy a new car, but how should you go about paying for it?
You've used all the online tools motoring.com.au and carsales.com.au have to offer, and finally decided on the new car for you. You've picked the colour, carefully chosen the equipment grade and you even have an idea of the options you'll tick.
How are you going to pay for it? Are you better off paying cash or taking out a loan? And, if you've chosen the latter route, what are the choices when it comes to car finance?
Should You Pay Cash For a Car?
Paying cash is the best option when you have lots of it to spare. There are no borrowing costs, no repayments and you don't need to go through the process of applying for a loan.
If you don't yet have the cash on hand you'll need to budget and save. Realistically, how long will that take?
If you choose to pay cash, how sound will your finances be once you've made your purchase? Would running and servicing costs lead to cashflow problems further down the road? And would you be able to cope with any unforeseen expenses?
If you're in a position to pay with cash, it ultimately comes down to personal circumstances as to whether it's the best option or not.
Finance is, by far, the most common way people purchase new cars. And with interest rates at record lows, it's never been cheaper.
Car finance can be structured so that you get a fixed interest rate for a fixed term. That makes your repayments predictable. From the outset you know what your monthly repayments will be and for how long you'll be paying them.
Another common feature of car finance is the option of a balloon payment at the end. Balloon payments make the process of paying off your finance more affordable. They allow you to just repay the amount by which your vehicle depreciates during the three to five year term. At the end of the term you make a lump sum payment to cover the balance.
The beauty of this method is that you can sell your car at the end of the term and use the proceeds to cover the balloon payment. It's an affordable way to update your car regularly. Alternatively, you can opt to take out another loan to cover the balloon if you want to keep the car.
There's a huge range of car finance packages on offer, all different and geared towards different needs and borrower niches.
Without expert knowledge, the choice can be overwhelming and confusing. As such, the guidance of a broker like Stratton can be invaluable in helping you choose a package most suited to your needs.