Purchasing a new or used vehicle is a large investment and depending on your financial situation you can either pay for it outright in cash or obtain finance through a lender.
Every year Australians access billions of dollars in finance for their car purchases with 90% of all vehicle sales arranged through finance and the average car loan size in 2020 being $31,738.40. With obtaining finance being the clear preferred option for Aussies that’s not to say paying cash doesn’t have its pros and cons. This includes a simpler process and greater flexibility over ownership but also comes with drawbacks such as limited vehicle choice (due to budget restraints) and depleted savings for other investments (or emergencies).
So which is right for your unique situation, pay for a car with cash or obtain finance? We’re here to help, so let’s delve into the six key benefits of buying a car on finance to assist you in your decision-making process.
If you need a car quick smart with a vehicle loan you don’t have to wait until you’ve saved all or even part of the money. If the monthly finance repayment is manageable, then car finance is a good option. You can drive off in your new car within the time it takes to obtain finance pre-approval and the dealer to prepare your vehicle.
You may be tempted to purchase a used vehicle simply to avoid having to take out a loan. But in the long run, this isn’t always the most cost-effective option. Used cars tend to break down more often, sometimes requiring costly repairs.
A car loan can help you buy a more expensive vehicle than you might not be able to afford upfront with cash or even a brand new car that is far less likely to require costly services/repairs. Not to mention, many newer cars, in particular with electric/hybrid technology can lead to large fuel savings over the long-term.
Vehicle-related expenses account for roughly 40% of all work-related tax deductions and if you purchase a new car with finance this comes with additional perks. For example with a chattel mortgage, you may be able to claim the interest payments as a tax deduction. Similarly with a finance lease option tax deductions are available for the lease rental payments.
In addition to this you may be eligible for the Australian Federal Government’s instant asset write-off scheme, which applies to both new and second-hand equipment under $150,000 and allows you to claim an immediate deduction for the business portion of the asset.
You can read more about the various finance options available and tax implications of each in our blog, ‘A Quick Guide On The Most Tax Effective Way To Buy A Car.’
When you borrow money for any circumstance, including a car loan, the lender will check your credit history. With a successful loan application and responsibly paying back the money borrowed over the loan term, this demonstrates to lenders that you’re relatively low risk, and can improve your likelihood of being approved for credit in the future at a better rate.
This is more apparent in recent times with comprehensive credit reporting rolled out nationally. Previously, your credit report only showed your ‘bad’ credit behaviour such as defaults and other credit infringements and bankruptcies. Today’s lenders look at your comprehensive credit report that also includes positive information like your repayment history. So if your credit report or credit history shows that you manage your debt well, (e.g. with a successfully repaid car loan) it can assist in building your credit rating. This is particularly helpful for those with thin credit files (young people or those still living at home) or those with a damaged credit history.
Another advantage of purchasing a vehicle on finance is that there are numerous lenders in the market, each vying for your business. Whereas it can sometimes be difficult to source a small business or personal loan, car finance leasing or business car loans are a much more competitive industry and allows you to obtain a loan with interest rates and loan terms that work for your particular financial situation. If you’d like to find out more on the various lenders in the market and options available you can check out our lenders overview page here.
If you’re purchasing a vehicle for your business another benefit of obtaining car finance is it can help you maintain much needed liquidity, especially if you’re just starting out. Most business owners face significant cash flow problems whilst starting up, and these limitations can make it very difficult to purchase a car outright with a lump sum cash payment. By choosing to apply for a business car loan, you can enjoy the benefits that come with owning a car whilst simultaneously spreading out the cost of that vehicle over several years.
If you have any queries please get in touch with our team of car finance experts here at Driva today on 1300 755 494. Or if you’re ready to get started our smart car finance platform allows you to access your best available rates from our panel of lenders in under 1 minute! Use it now to find a car finance option that suits your needs.