3 reasons to choose car finance over buying a car with cash

With the cost of living and interest rates rising, managing our finances has become increasingly crucial for many households. Inflation was at 6.8% in April 2023, and the cost of day-to-day necessities continue to increase. Even so, that didn’t stop Aussie car sales either, soaring to an all-time May sales record last month*. So if you’re in the market for a car, it’s more important than ever to understand your options.

Buying a new or used car still takes careful consideration, because let’s face it, it’s still a significant purchase. So what are your options? You can choose to buy outright with cash, or use car finance. While you might hesitate to take out a loan with interest rates rising, benefits such as fixed rates and higher buying power can make car finance a smart financial decision. To make an informed choice, we’re here to help you understand your options around car finance.

From the top: How does car finance work?

Car finance is similar to other loans, which allows you to borrow a certain amount of money to buy a new or used car. In the same way that personal loans or home loans do, car finance is made up of an interest rate, repayment period, and other fees and charges. A car loan is also securitised against the car as an underlying asset, very much like a home loan being secured by the property itself. Your regular repayments (monthly, fortnightly, or weekly) on the car depends on these components, and factors like cash deposits and balloon payments.

Getting car finance typically looks like this: After choosing a car you’ll compare finance rates and quotes. These could be from a bank, financier of your own choice, or a financier partnered with the dealership you’re buying from. From there, you’ll just need to submit an application for approval on the loan of your choice. Alternatively, you could also get in touch with a lender to get pre-approved for a certain amount and choose your car within that budget.

Once you’ve settled your finance details and contract, your lender will pay the dealership or seller you’re buying the car from on your behalf. From there, you’ll make regular repayments over a period of typically 2-7 years.

Why choose car finance over paying upfront with cash?

Now that’s the basics covered, let’s take a look at some of the advantages you may be able to benefit from by going with car finance.

1. More buying power

By combining savings and finance on your purchase, you’re typically able to increase your buying power compared to paying purely with cash. Finance can enable you to buy a car that’s of a higher trim level or one with more safety and tech features that you may not be looking at on a cash budget. “Features such as safety tech are always a favourite among families,” adds Simon Bozzi, Carma Director of Customer Finance, “Advanced tech like wireless charging or remote tailgate could also be something to consider on higher trim models, and that’s where finance can get you to.”