In 2017, the Australian Securities and Investments Commission (ASIC) stated that indicatively, 90% of all car sales are arranged through finance, of which around 39% are financed through a dealership and around 61% are financed from other sources. With this many Australians using finance to purchase their cars, why does car finance still have a negative stigma?
The first point made in the war against car finance is depreciation.
“If you buy that car it won’t be worth what it’s worth now in 3 years.”
– Concerned Friend
Of course it won’t. Neither will your new TV, laptop or fridge. Like all technology, with newer models coming out annually, the older models slowly lose value as they are used. In fact, financing a car can help compensate depreciation. You’re paying for the car as you use it, not upfront. Depending on the agreed contract for your car, you may also be able to trade it back into the dealership in X amount of years for a brand new car. It’s always recommended to shop around and consider all your options before deciding what avenue of purchasing your new car fits best for you.
Another negative point made against finance is the interest. Many people see interest rates as simply just paying extra, and why would you pay extra for something? Firstly, interest rates for car loans, finance and personal loans are lower than they have been in years, with some dealer finance running at as little as 5.5% interest.
Example: If a brand new car costs $100,000 and you pay a $40,000 deposit and finance the remaining $60,000 at 5.5% interest p.a. Then repayments would be $264 per week over 5 years. Amounting in $8,634 in interest over 5 years.
Secondly, paying a little bit extra on top of the car allows for the luxury of paying off the car as you use it. This means you can take your lump sum of cash and use it to invest in something with more of a return, or it means you can purchase a car which might be a little bit out of reach of your savings. Which leads to the next point.
Passion and Needs
For people who are passionate about cars owning the car of your dreams may not always be attainable. It is very difficult to save a lump sum of cash especially towards the $80k-$100k mark. Car finance allows enthusiasts the ability to purchase their dream car sooner and add the cost to their monthly bills. Alternatively, if you require a car for your work and business, it could be very beneficial to finance a new car. You can start work sooner and gain more money, plus you run less risk of your income source breaking down or requiring major mechanical issues fixed.
In conclusion, financing a car could be beneficial for you. There is no one deciding factor as no one person has the same financial situation. Too many outlets are slandering finance as a horrible road to go down, but it might just be right for you. Do your research, speak to people, discuss among your peers and pick what route is best for you.