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Finance your new car, or pay with cash

"Hi team, I am 24 years old and have some cash saved that I could put towards purchasing a new car. Could you please give some advice whether to use my saved cash to buy a car outright, or pay a small deposit and finance the balance?

Regards Wendy,

Hi Wendy,

After buying a home, the next biggest purchase you are likely to make is buying a car. Once you have arrived at a decision of which vehicle is right for you to purchase, you will have to decide the right payment plan for your car. You will either need to use your saved up cash, or do you get finance?

Choosing between the two isn't an easy task for most people, because there are so many variables to be put into consideration when arriving at a decision. I will present to you some options and the pros and cons of each, which will hopefully make your decision a little bit easier.

Cash Payment

One of the simplest ways of paying for your newly purchased car is through cash, being one of the cheapest. Once you make your payment, you will not have to worry about paying monthly installments, or having to pay interest on the loan you took in buying the car.

The problem however is that you will probably not have that large amount of money you will need in buying your car. Postponing the purchase of your car until the money is available isn't always a good option; neither will be buying a cheaper model just to accommodate your budget.

This is why vehicle finance most times is a better option, especially when the lump sum you will need in buying your vehicle isn't available. There are so many other things you can do with the cash. You could put the money into an investment that may give you a higher return than the interest you would be paying on a car loan. Use it as a deposit towards a new home, or go on a vacation with your family.

Car financing

The practice these days is to borrow money in paying for new and used cars. A car loan has become the favorite finance for car owners. However, there are still several other options you can choose in paying for your car, our business managers are vastly experienced, and will work with you to tailor a finance package that suits your budget and lifestyle.

With vehicle finance, you can instantly buy the car you like, without having to spend time saving up the money.

With car finance, what you will be doing is paying for the car as you use it over its entire life time, rather than having to completely pay for it as you would when you pay with cash.

Even though you have to pay interest on the loan you borrowed, interest rates are now very low, and can be fixed for the life of the loan protecting you against possibly interest rate rises.

With a car loan, the car you have purchased will be completely yours once you have made full payment, but the financier will hold a security on the car as a form of collateral. What this means is that they have the right to take back your car if you stop making payments on your loan.

To reduce the interest on your loan, it is better to opt for a secured loan than an unsecured personal loan from the bank. Once you have completed your payments on the car, the security on the car will be lifted and the car is 100% yours.

There are so many options from which you can choose from when looking for the right car payment option. Most car loans run for 2 to 5 years. You can structure the loan to make weekly, fortnightly, or monthly payments.

The team at NZVF will help you tailor a finance package that fits your budget and lifestyle.

Home loan

If you have bought your home using a mortgage, you could consider drawing on the equity in your house through refinancing, or a redraw facility to offset the payment on your car, instead of opting for a new car loan.

This could be tempting, considering the fact the mortgage rates are much lower than rates for car loans, and you also have the luxury of making just a single monthly payment which covers both your car loan and mortgage.

But bear in mind that it takes about 20 years for a home loan to be paid off, and this means that your car loan will still be continuously being paid for, over the term of your mortgage. Your payment will still include the interest on the car, even if you have long since sold your car.

I am sure you have learned a lot from all I have shared here, concerning paying for your car, and I am sure you will use all you have learn't here in making the right decision the next time you want to buy a new or used car.

To discuss your finance options in more detail, or if you have any questions at all, please don't hesitate to contact one of our business managers. They can organize a no obligation pre-approval for you today!


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