Buying a car can be the most exciting and daunting experience all at the same time. Trying to decide which car is the right fit for you, your hobbies, your family, your work, your lifestyle, your energy goals (the list goes on) feels nearly impossible and that is before you have to decide how to pay for it! Therefore, we will cover the top 5 ways you can pay for your new car, so you have one less thing to think about.
It might seem obvious, but if you are lucky enough to be in a position where you have enough cash in the bank, you can just buy your car outright. This isn’t as common as it once was as car prices continue to grow with more and more technology and fuel efficiency being built into them and the current cheap cost of funds to get a loan or lease.
It was also commonplace that if you paid cash, they might slash the prices; however this isn’t really relevant anymore. No matter how you pay, a car dealer is going to get their money, and the tax man will always find out, so cash can sometimes be more of a hindering factor than a help.
2. Personal Loan
A personal loan can be a quick and easy way to get the funds you need to buy a car quickly. All banks and most finance companies offer personal loans and generally allow you to spend the money on whatever you want. This can be handy if you are buying a used car and it might need some work done. In addition, it will allow you to borrow some extra money to do what you need to do once you have purchased the car.
Some of the downsides to a personal loan are the high rates and fees associated with it, as there isn’t an asset connected to it. They can sometimes have strict lending criteria meaning if you have a casual job, etc. They can be more difficult to get approved on.
A good tip is if you are going for a personal loan, try to get approved by the bank you do your daily banking with. They will already have a good history of you and be able to see what other banks can’t, meaning you will have the best chance of getting approval.
3. Car Loan
The traditional car loan is just like a personal loan, except with a car loan, the bank or finance will put an encumbrance on the vehicle (this is known as securitisation) and keep it on the car until you pay the loan off. This reduces the risk of lending the money to you from the bank’s perspective, meaning they can give you the money at a cheaper rate. But you need to find the best car loan option as there are many choices available.
This is a very common and very handy way to buy a car. A few key considerations are:
- You can’t sell the car unless you pay the total amount owing off.
- You have to pay your agreement repayment throughout the course of the term, so it lacks flexibility.
4. Novated Lease
A novated lease is by far the best and most tax effective way to buy a car if you are an employee. There are significant savings to be had from up front duties and taxes to the ongoing income tax benefits.
For example, in a regular, fully maintained novated lease, you can bundle all your running costs into one payment managed by your fleet company and dedicated by your employer from your pay. Meaning not only can you get the ease and flexibility of having everything looked after, but you can also make some of it with your pre-tax earnings keeping money away from the tax man!
5. Credit Card
This is a very uncommon but highly flexible way to buy a car. When used correctly buying a car with a credit card can be the best option. The two key scenarios that make sense are. If you already have the cash to pay for it and if you have a limited lending history and are looking for a cheaper car.
When you are only looking for a cheaper vehicle, the fees associated with regular finance can drive the cost of funds up aggressively, plus, they can be harder to be approved for. With a credit card, you can get low if not no fee car, make payments much more freely, not be penalised for paying it off early and with a reasonable balance, can be easily approved for new borrowers.
If you already have the cash, it can sometimes make sense to put it on a credit card and pay it off in the interest-free window. This means you can sit on your cash for a little bit longer and grab a bucket load of points along the way!
Buying a new car should and is exciting. Crunch the numbers, speak to your accountant, and make sure that you pay for it the right way to get the most out of your money when you buy your next new car.
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