Buying a car is a major financial decision, and deciding how you’ll finance it isn’t an easy call. We’ll break down six of the best ways you can finance a car, so you can get on the open roads sooner!
1. Buying it outright
The most obvious way of financing a new car is to buy it outright. If you have enough cash on hand to pay for the entire car, you’ll immediately own the car outright. Make sure you have enough money left over after buying the car to cover any running costs or unexpected expenses. These will include things like registrations, insurance, maintenance and servicing costs.
Buying a car outright is the most straightforward way to finance a vehicle, and will also end up being the cheapest option. However, if this isn’t a financially viable option for you, there are a number of other ways you can finance a car.
2. Secured car loan
One of the most common loan products that Driva offers is a secured car loan. With this type of car loan, you’re able to take out a loan using your car as collateral. Because your car is acting as ‘security’ against the loan, lenders are reassured that if you were to default on your repayments, they would be able to recover their funds by repossessing the car. As a result, secured car loans are typically accompanied by lower interest rates and more flexible loan conditions, as your lender will view you as a low risk borrower. Secured car loans are typically most suitable for individuals or businesses who are looking to purchase a newer car.
One of the main factors that many lenders will consider when pricing your loan is your credit score. For many lenders, the higher your credit score, the lower rate they’ll be able to give you.
However, every lender has different lending criteria, so even if you don’t have a great credit score, it’s still worth considering a secured car loan as an option. We’re pretty confident that one of the thirty lenders on our panel will be able to help you finance your new car. If you are getting an EV you may also be eligible for discounts on an EV car loan so be sure to check your options.
3. Unsecured car loan
An unsecured car loan, by comparison, means that you are not using your car as security against the loan. Because the lender doesn’t have any collateral over the loan, they will normally charge a higher interest rate and have stricter lending conditions. An unsecured loan means that if you default on your repayments, the lender isn’t able to simply take back your vehicle (though they may commence legal proceedings!). Unsecured car loans are typically best suited for older, used vehicles.
Like with a secured loan, many lenders will consider your credit score before pricing your loan. Making sure you’ve paid off your existing debts, as well as continuing to make payments on time, can improve your credit score overtime, meaning you’ll be able to pay less interest on future loans.
All the lenders that Driva works with offer fixed rates loans, so regardless of whether you’re getting a secured or unsecured loan, you can be confident that the amount you’ll pay each month in repayments isn’t going to change. This makes it easier to budget and plan for the future. However, it also means that the only way you’d be able to access a lower interest rate down the line is to refinance your car.
4. Hire purchase
A hire purchase is a great option if you’re wanting to buy a car for a business purpose, but don’t have the cash on hand to do so immediately. With a hire purchase, you’ll need to pay a deposit and then pay off the loan in installments. At the end of the repayment period you’ll gain complete ownership over the vehicle. Hire purchase agreements tend to be best suited for newer cars, as you might find the interest rates are higher for used cars.
Buying a car with a hire purchase is a great way to spread out the cost of the vehicle over several years. Additionally, depending on the lender you go with, you’ll probably have some amount of flexibility over the conditions of your repayments terms. This could be the length of your loan or whether you make your repayments weekly, fortnightly or monthly. In many cases, the better your credit score, the better loan conditions and rates you’ll be able to access.
One of the main drawbacks of a hire purchase, as with any other loan finance product, is that you’ll incur a number of fees and charges along the way. This will normally include things like a set-up fee, interest and sometimes monthly fees - all of which will mean you’ll spend more overall than if you had bought it outright.
5. Credit card
Another option for financing your new car is to use your credit card. This will only be possible if your credit card limit is high enough for the price of the car you’re looking to buy. Financing your car with a credit card can be a great option if the price of the car is very low, and therefore ineligible for a loan with many lenders. Make sure you check what interest rate you’ll be paying on your credit card, and compare that with other loan options like a car loan or personal loan, so you can be sure that you’re paying the best price.
If you decide to use your credit card to buy a car, make sure you give your bank a call first to give them a heads up. Large purchases can be flagged as possible fraudulent transactions, so it’s best to let them know ahead of time that you’re planning on making a large transaction, so you can avoid any inconvenience.
6. Chattel mortgage (business loan)
Finally, if none of these finance options have been quite right for your circumstances, you might consider a chattel mortgage. Chattel mortgages are a very popular finance option among business owners and operators and have a similar structure to fixed-rate traditional mortgages (chattel refers to the car you’re financing, and mortgage refers to the loan). With this type of a finance product, the lender will use your new car as the security for your loan, and you’ll gain ownership over the car immediately. You’ll then pay off the loan from the income that the asset generates in your business. It’s important to note that, like with any secured finance product, if you’re unable to meet your repayments, your lender might be able to repossess your car.
Chattel mortgages are popular for a number of reasons, but one of the main ones is that it has several associated tax benefits. These can include tax deductions for interest payments and depreciation, as well as the potential to claim the GST paid on the vehicle as an Input Tax Credit.
If you’ve weighed up your car finance options and have decided to get a car loan, Driva can help you find your perfect loan match! To get started, you’ll just need to tell us a few details about yourself and the car you’re looking to finance. From there, our smart car financing platform will be able to give you personalised rates in just a few minutes, and all without impacting your credit score! Once you’ve decided on which lender you want to go with, we’ll make sure you’re likely to be approved before submitting your application to the lender. The approval process generally takes between 2 hours and 2 days depending on the lender.
If you’ve got any questions about the different finance products that Driva offers, or aren’t sure which one is right for you, feel free to get in touch with our friendly and knowledgeable team! Give us a call on 1300 755 494 or email us at email@example.com. Or, if you are ready to get started now, you can apply online using our simple platform here.