Cash vs bank loan vs dealer finance

If you have the funds available, purchasing a car with cash means you can avoid any finance and interest charges. For example, if you purchase a $15,000 car, the car will only cost you this fixed amount.

However this may be dipping into your cash reserves that you may want to retain for ‘a rainy day’ and despite having the funds available for a car purchase, your priority may be having cash liquidity at hand in a savings or transactional account.

If you purchased the car via a loan with an interest rate of 9% over a 60 month period; the total value of the loan will be $18,682. This is an extra $3,682 on top of the principal amount of $15,000 plus any other fees and charges.

Some of the benefits of a personal car loan applied directly from a credit provider, include:

Of course, as with all loans, you are required to make regular repayments and otherwise comply with the terms and conditions of the loan.

In some instances, dealers might offer low-interest rates; but it can be worth investigating whether there are fees, charges or other loan restrictions or conditions such as short-term set interest rates, balloon payments (where there is a larger lump sum payment due at the end of the loan term) or a limitation on the finance available to certain makes and models of new cars, which could offset the benefit you might have received from the low-interest rate.