Car finance vs. paying for your car upfront
- A car loan can help you to get your car sooner
- Build positive credit history with car finance
- Learn valuable money management skills
It may be cheaper to buy your car outright, but you could miss out on some big benefits.
Many of us may never be in a position to pay cash upfront for a new car. Between living costs, mortgage repayments, and family expenses, it isn't always possible to amass the $20k, $30k, or more which is needed to cover the total cost of a new car.
However, that's not a bad thing. Indeed, car loans often provide drivers with a range of benefits, which may not be available should they pay cash. This can be especially true for young people who are starting out and who are just learning to budget.
In this article, we will explore some of the benefits of choosing a car loan, instead of paying cash.
1. Get your new car straight away
This may seem like the most obvious advantage of a car loan, yet it's still important to remember.
It could take you years to save enough to pay for your new car outright, which is fine, providing you have the option of waiting.
However, if you need to get to work, if you need to get the kids to school, or if you need to drive for your business, waiting and saving may not be possible.
A car loan could get you on the road sooner. Whereas saving and paying for your car in cash can take considerably longer.
2. Keep money in the bank
Okay, let's say you have the money to pay for the total cost of your car right now, yet, buying your chosen vehicle outright will deplete your savings either completely or significantly.
This could leave you vulnerable to unexpected expenses. For example, should you have to shell out for emergency dental work, you'll no longer have the money in the bank for that.
Where possible, it's always good to have money set aside 'for a rainy day'. Choosing a loan with a manageable and monthly repayment plan can provide you with a vehicle while leaving your savings intact and ready for use in case of surprise costs.
3. Get a safer or more practical car
Pay cash, and you're limited by the amount you have in the bank. If you've saved $20k and intend to pay cash, then you can only get a car worth $20k or less. Not so, with a car loan.
With a car loan, you could potentially get access to an extra $5k or $10k and those additional funds could allow you to purchase a safer or more practical vehicle. One that has lower running costs or more handy features as standard.
As they say, 'quality remains when the price is long forgotten'. It may be worth paying more overall to get a car that's more suited to your needs.
4. Build your credit history
Every time you take out a loan, the outcome of that loan is added to your credit history. Repay a car loan without difficulty, and that positive result helps you to build a positive credit score.
This can be especially valuable if you're looking to recover from bad credit. A car loan could be a good way to demonstrate your financial stability and your ability to meet loan obligations.
The benefit of this? The next time you apply for any type of loan, you may have an easier time getting it approved because of your positive credit history.
5. Learn to manage your finances
For many young Australians, a car loan is the first finance product that they will purchase. As such, it can be a great first step toward understanding and managing one's own finances.
Repaying a car loan requires budgeting, forward planning, and expertise in money management. A car loan can be a good way for young people to develop these skills with a relatively small loan.
The skills which they develop with a car loan now are often the same ones which they can utilise later in life for larger sized loans, such as the mortgage on their home.
"It may be cheaper to buy outright, but you could miss out on some big benefits."
Thinking car loans? Think Rapid Finance.
At Rapid Finance, we've been helping Australians find finance for over 17 years. We compare a range of lenders and loan options to seek out a finance solution that matches your circumstances.
We could help, even if you have a less than perfect credit history, or if you've been denied by other lenders. To find out more about your car loan potential, speak with a Rapid Finance loan specialist today.
For more information, visit our car loans page or call us on 1300 467 274