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Buying a car with cash VS finance: Which is best?

If you’re thinking about borrowing to buy a car you’re not alone. Around 70% of all new cars in New Zealand are bought using finance according to the AA. While buying with cash may be the simplest option, most Kiwis don’t have large lump sums of cash lying around and those that do might not want to part with it all at once.

With that in mind, we’ve looked at the buying a car with finance VS buying with cash – which is right for you?

Buying with cash

Buying with cash is simple and easy (if you’ve got the money). All you have to worry about is picking the right vehicle for your needs, and if you want to sell it in a year or two you’re free to do so. If you pay the full amount up front you also won’t have to worry about ongoing monthly repayments or the cost of interest.

With that said, most Kiwis don’t have enough cash on hand to buy a new car at any given time. If you don’t you could start saving but this could delay your purchase for months or longer. You could also buy a cheaper vehicle but this could mean missing out on features that are important to you.

Buying a car with finance

Buying a car with finance is a great way to get the car you want and need without emptying your bank account or spending months saving. It may cost more in the long run in interest and fees but it allows you to keep your cash in your account and spread the cost of the car out over several months or years. You also may be able to afford a better vehicle.

When you buy a car with finance you’ll usually have a few options:

  • The easiest way: securing a new loan with a finance company through a car dealership.
  • Adding the car to your mortgage with a redraw facility.
  • Adding the car to an existing personal loan.
  • Securing a new loan directly from a bank or finance company.

The first option to consider is securing a loan through a car dealership. These are usually backed by reputable third party lenders and they’re easy to apply for as the dealer will usually help you with the application.

Adding the car to your mortgage may also be a good idea as home loans generally have lower interest rates. However, be sure to increase your repayments and pay your vehicle off as quickly as possible, otherwise you could end up paying a huge amount of interest on your car over the standard 30 year loan period. Adding the car to an existing loan is also a good option as it’ll help you avoid loan establishment fees and the extra work of securing a new loan.

Making sure finance is right for you

Whatever option you go for you need to be careful when securing finance to buy a car. Make sure you fully understand the loan contract and seek advice from a family member or an expert if you’re unsure. Make sure you understand all the fees and extra charges you may have to pay as well as what happens if you can’t make repayments.

If you’ve got the cash to buy a car and you’re willing to spend it, that’s awesome. But if you don’t, buying with finance can be a great option if you’re smart and you know what you’re getting into. Drop in to your nearest Nicholson Auto dealership today to check out our vehicles and chat about whether buying with cash or on finance is right for you.

*Image credit: Suzuki NZ and Nissan

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