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Is car finance worth it?

When it comes to buying a car, one of the most significant decisions you’ll face is whether to finance the purchase or pay for it outright with cash. Both options have their advantages and drawbacks, and the best choice depends on your financial situation and long-term goals. In this guide, we’ll explore the benefits and drawbacks of car finance to help you determine if it’s the right choice for you.

Choosing between car finance and buying a car outright with cash can be a challenging decision. While paying in cash offers the benefit of ownership without debt, car finance provides the flexibility to spread the cost over time, potentially allowing you to afford a better vehicle. Before making a decision, it’s crucial to consider your financial situation, needs, and future goals.

Benefits of car finance

Car finance offers several advantages that can make it an attractive option for many buyers:

Afford a better car

One of the primary benefits of financing a car is the ability to purchase a newer or more feature-rich vehicle that may be out of reach if you were paying in cash. By spreading the cost over several years, you can drive away in a car that better suits your needs and lifestyle without depleting your savings.

Spread the cost

Car finance with Handy Finance allows you to break down the cost of the vehicle into manageable weekly, fortnightly or monthly payments, making car ownership more accessible. Instead of a large upfront cash outlay, you can budget for regular repayments, which may include interest and fees. This can help you manage your cash flow more effectively, especially if you have other financial commitments.

Build credit score

If you’re looking to build or improve your credit score, car finance can be a valuable tool. Making timely loan repayments demonstrates financial responsibility and can positively impact your credit history. A strong credit score is beneficial for future borrowing needs, such as applying for a mortgage or other types of loans. However, it’s essential to practise responsible borrowing to avoid any negative effects on your credit score.

Drawbacks of car finance

While car finance has its advantages, there are also some drawbacks to consider:

Overall cost

One of the main downsides of financing a car is the interest charges that accrue over the life of the loan. This means that the total cost of the vehicle will be higher than if you paid for it outright with cash. Additionally, depending on your loan terms, you may face other fees that increase the overall cost of the car. With Handy Finance, the only fee you’ll pay is the establishment fee, which covers the administrative costs of processing your application.

Debt burden

Taking on car finance adds to your overall debt, which can impact your ability to save for other financial goals or emergencies. It’s essential to consider how the repayments will fit into your budget and whether they’ll affect your ability to achieve other financial objectives, such as saving for a home or retirement.

Cash vs. car finance: a closer look

Deciding between paying cash for a car or financing it requires a close examination of your financial situation:

Financial situation

If you have sufficient cash savings to purchase a car without straining your budget or dipping into emergency funds, paying cash might be the best option. This allows you to avoid interest charges and fully own the vehicle from day one. However, if paying cash would significantly deplete your savings, financing the car could be a more prudent choice, allowing you to retain liquidity for other needs.

Credit score

Your credit score plays a significant role in determining the terms of a car loan. A higher credit score can qualify you for better loan terms, including lower interest rates, which can make financing more affordable. If your credit score is strong, financing could be a viable option, but if it’s low, you may face higher interest rates that increase the cost of the loan.

Making the decision

When deciding whether car finance is worth it, carefully assess your financial situation, including your income, expenses, and future goals. Consider how car finance fits into your overall budget and whether it aligns with your long-term financial plans. Research different loan options, and compare interest rates with our Loan Calculator to figure the best option for your car finance. It’s also helpful to use this calculator to estimate potential loan repayments and total costs, giving you a clearer picture of what to expect.

Remember, there’s no one-size-fits-all answer. The best choice depends on your individual circumstances and what makes the most sense for your financial well-being.

Car finance offers a range of benefits, including the ability to afford a better vehicle, spread the cost over time, and potentially build your credit score. However, it also comes with drawbacks such as higher overall costs and the burden of debt. Ultimately, whether car finance is worth it depends on your financial situation and goals. By carefully considering the pros and cons and thoroughly researching your options, you can make an informed decision that best suits your needs. If you need any advice to help make the best decision, then reach out to the Handy Finance team today.

Approvals are subject to Handy Finance’s credit criteria and responsible lending requirements. Fees, charges, terms and conditions apply. Finance provided to approved applicants by OurMoneyMarket Lending Pty Ltd ABN 64 605 231 669, trading as ‘Handy Finance’ holds Australian Credit Licence number 488228 and is a member of the Australian Financial Complaints Authority (AFCA). The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, we recommend that you consider whether it is appropriate for your circumstances. We recommend you obtain independent advice before acting on any information in this article.

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