Car Buying Guide: The Pros & Cons of Paying Cash for Cars Versus Getting a Car Loan

If you’re reading this, then you’ve probably decided It’s time to purchase a new car.

Thankfully, there are many ways to buy a car these days, each with their own pros and cons.

In Australia, two very popular options when buying a new car is Paying Cash for vehicles Melbourne or Getting a Car Loan and paying off a car over time.

In the following, we will take a look at the advantages and disadvantages of Paying Cash for Cars and Getting a Car Loan to help you make the right choice for yourself.

Paying Cash for Cars

The Pros:

You Get to Pay in a Lump Sum: Paying Cash for Cars is undoubtedly the fastest way to pay for a car. Through a quick transaction, you can have your new car paid for in a lump sum today in very little time. This is unlike getting a Car Loan, where you will be paying off your car over months or even years.

You Can Own Your New Car ‘Same Day’: Not only can you pay for your car in a quick lump sum, you also get the pleasure of being able to drive away with your car the ‘same day’ you contact the car seller. Your new car, paid for in cash, is yours to use as you will.When getting a car loan, you don’t have the pleasure of knowing that your car is yours to keep without further pending fees.

Paying Cash for Cars Can Be Cheaper: Paying for your car in cash will generally be cheaper than getting a car loan. By paying in one lump sum, you won’t have to pay interest or pay back the company that gave you a car loan.

Paying Cash of Cars is Simple: Paying Cash for your car will generally be simpler than getting a car loan. Of course, there is the usual paperwork that comes with handing over ownership, but with a simple transaction you can skip the other complexities getting a car loan.

The Cons

Your Cash is Gone Quickly: When paying for your car in cash, you submit to departing with a large sum of money in one quick transaction. This can be off-putting to some people who would rather pay for their car little by little.

You Need to Take Time to Save:It’s not every day that you have enough money to buy a car outright! For most people, this means needing to take time saving up money before you can pay Cash for a Car.

Your Choices are More Limited to Used or Cheaper Car Models:Paying Cash for Cars has many benefits, but like we said – few people can buy a new or expensive model with one lump sum. This is why cash buyers are typically Old car buyers as it’s much more viable to buy an old or used car with cash instead of a new one.

Getting a Car Loan

The Pros

You Don’t Have to Pay All at Once: Whether your pay all at once or over time can be a positive or a negative however you look at it. With a Car Loan, you get the stability of being able to pay for your car over time and not completely depleting your bank account.

You Have More Choices for the Car You Want to Buy:By getting a Car Loan and paying for your car over time, you are able to afford more expensive cars as well as new cars. Getting a car loan allows you to drive away with the car you want without having to save up its total cost beforehand.

Getting a Car Loan Improves Your Credit History:The more you receive a loan and successfully and responsibly pay it back, your credit history is improved and thus aids in your chances of getting future loans in the future.

The Cons:

Getting a Car Loan is More Expensive:Generally, getting a car loan is more expensive than paying for a car with one cash sum. This is because you have to pay interest, as well as car sellers often selling their car for cheaper if you buy it on the spot.

Ownership Depends on Paying for Your Loan on Time:By getting a Car Loan, there is a slight sense of instability in regards tothe ownership of your car. This is because, if you don’t pay your lender back on time or consistently, you can lose your car which will be used as collateral for the loan.

Getting a Car Loan is Less Simple: Although buying a car will always have its fair share of paperwork, getting a loan will take a little more paperwork. Not to mention, a car loan will require checks on your credit history and more.Now that you have a clear understanding of the pros and cons of each option, you can make an informed decision based on which option makes more sense for you.

Car Loan Guide: Things You Need to Know When Buying A Car

If you’re planning to buy a car, before you start shopping for the car, you need to start hunting for the right car loan. That’s the way to do it, find the right auto loan and then find a car that fits the loan’s requirements. But sadly, a lot of people tend to do the exact opposite. They start with finding the car and then hunt for a car loan that will help them get that specific car. If you’re guilty of doing that, it’s time to change your approach to car loan.

Car Loan Guide

To choose the right car loan for you, you will need to know what to look for and the potential pitfalls to avoid. Read on to find out everything you need to look for when choosing a car loan.

Get A Car Loan Pre-Approval

Getting a pre-approved car loan can make the entire car buying process a lot easier. Not only will you know just how much you can spend on a car, you also get leverage as a serious buyer. When you have a financing offer from a bank or lender, sellers give you preference as you are a “sure sell”. This also gives you the upper hand when it comes to price negotiation, as you have a better chance of getting a higher-end or newer model car for a lesser price, quoting your pre-approval offer as the amount you can afford to pay for the car. Your loan pre-approval is your trump card when it comes to buying a car. It is also your reference point as far as affordability goes. Knowing how much you can borrow will help you narrow down your choices.

Be Wary of Low Interest Rate Offers

Interest rates on car loans tend to vary significantly between different banks & lenders. So, it’s wise to take your time to compare the different interest rates & find a loan that works for you. But make sure you don’t choose a car loan just because of the low interest rates offered. Many loans come with introductory low interest rates that revert to high interest rates during the course of the loan. So, if you find a loan with very low interest rates, dig in and do some research. Find out how long those introductory rates apply for and what you will be expected to pay once the introductory offer ends.

Avoid an Upside-Down Car Loan Scenario

When your car’s market value is less than the amount you owe on your car loan, you’re in what is called an “upside-down” car loan situation. For instance, let’s say that you still owe $25,000 on a car that you’re looking to sell or trade-in. But the market value of the car is at $15,000. That means you will still owe $10,000 in negative equity if you sell your car. You must then either pay off the loan or if you can’t, the amount that you owe will be added to your new car loan. So, don’t get caught up in a vicious cycle of upside-down car loans.

How can one avoid the upside-down car loan trap? The best way to do that is to consider how many years you are planning to own the car, and then choosing a car loan that equals that length of time. Also, when it’s time for you to sell your car, make sure you go to a reputable car buyer who will pay you fair market price for the car and not try to low ball you.

Check If Extra Repayments Will Incur Penalty Fees

While most car loans have a set repayment schedule, some allow borrowers to make extra repayments. Having such flexibility means that you can pay above the required repayment amount, thereby shortening the length of the loan. Not only that, you also end up paying less as you cut down the interest payment period. When deciding on a car loan, look for one that allows you to make extra repayments without penalising you for it. Some car & personal loans charge a penalty fee if you pay off the loan much earlier than the requisite loan period. So, check about this when looking for a car loan.

Choosing the right car loan can make your car buying experience pleasant and hassle-free.Sure, buying a car is exciting. But it’s also a responsibility and should be taken seriously. So, don’t just opt for the first financing option that you come across. Instead, do your research, find the right loan for you and look for ways in which you can save money (better interest rates& a big down payment). After all, a car is quite a big investment. Don’t be hasty & regret it later; be smart & make a wise decision with your car loan instead.