Cash vs bank loan vs dealer finance
When it comes to buying a new set of wheels, it might be easy to get carried away with the excitement – after all, next to a home, it could be one of the biggest purchases many people will make.
Consumers have many options from personal loans, cash payment, leasing, drawing on your home loan or utilising dealer finance directly through the car yard, each with their own costs and benefits. Here, we will be focusing on the three common payment methods:
|
1. Cash Payment |
|
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.
|
|
2. Personal Car Loan |
|
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:
-
The ability to purchase any car (however the age or new/used classification of the car will generally change the types of loans and interest rates available).
-
You generally have more freedom to purchase a car you want even if you don’t have the cash to purchase outright.
-
You can purchase new or used, from a private seller or car yard without using cash you have worked hard to save for another purpose or a rainy day.
-
Depending on the product, your loan may have no ongoing fees and no fees for early repayments.
|
Of course, as with all loans, you are required to make regular repayments and otherwise comply with the terms and conditions of the loan.
|
|
3. Dealer Finance |
|
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.
|
It’s not likely that you would purchase a home without sorting out your finance options first and it should be exactly the same for a car. Before you even settle on a make and model, think about how you are going to pay for your new vehicle, consider your financial goals, objectives and current situation and be clear on the full details of any potential car loan before making an on-the-spot decision.
If you have an enquiry regarding an IMB Bank new car loan, send us an online enquiry.
Get started
Lending criteria, terms and conditions, fees and charges apply to IMB Personal Loans.
