Paying Cash vs Financing a Car

We’re all unique in that we have different wants, needs and financial situations. When it comes to purchasing a car, we also have different core features that appeal most to the type of driving we’ll be doing. This will have you thinking about what is a priority – whether you’re driving the family, travelling to work or towing a caravan.

Features aside, purchasing a car can be an expensive and exhausting undertaking. Although it’s a question commonly raised, there is no universal answer as to whether you are better off paying cash or taking out a car loan. Instead, we will explore these options to help you make an informed decision with the best part being that there’s a shiny new car for you at the end!

How to Pay for a Car

Whatever option you choose, it’s important to consider how this potential purchase might impact your current financial situation. We encourage you to think critically about your budget, income and savings so you’re best prepared when reality sets in and you need to pay for your new car. It’s time to get your calculator out and see where you stand financially.

Pay For a Car With Cash:

Cash might seem like an ideal way to purchase a car but it’s often not a realistic option for many people. In the real world, not many of us have that much spare cash just sitting around ready to spend. Even if you do, you might not feel comfortable dipping into your savings to make a big purchase.

Despite this, if your finances are sound, this still might be the best option for you. This means that once you’ve paid for the vehicle you don’t have to worry about future car repayments and you can sell the vehicle without having to let your lender know.

Pay For a Car With a Credit Card:

Purchasing your dream car using a credit card might only be possible if your credit limit and budget allow it. It might also be an option for you if you don’t want to offer up your car as security on a loan. However, you’ll likely need to confirm with your credit card provider that large transactions, like purchasing a car, are allowed.

One of the main perks of using a credit card is that you might score reward points however, making a large purchase on a credit card could lead to high interest rates if you don’t pay it off in time. It’s also worth keeping in mind that if you max out your credit card, you won’t be able to use it for any other purchases until your balance is paid in full.

Pay For a Car With a Loan:

Financing a vehicle is much more common in Australia, especially given the average price of cars being what they are. It’s also the fastest way to get your hands on a new car without having to save up the full amount.

According to Finder’s Consumer Sentiment Tracker, a live survey of over 12,000 respondents, around 14% of Australians currently have a car loan as of March 2021. That’s the equivalent to 2.7 million people!

You can take out a secured online vehicle loan with Rapid Loans from $5,000 up to $25,000 for all types of cars, trucks, motorbikes, boats and even caravans. As with most online lenders, Rapid Loans offers secured loans. The lending agreement, therefore, states that the vehicle or other asset acts as security for the car loan when being purchased. This also means that you’re generally offered better interest rates and lower fees, so it’s a win-win!

How to Pay Car for a Car at a Dealership

When you visit a dealership, a motor vehicle dealer is the person who will sell you the vehicle. This is different from a one-off sale of a vehicle that you’ve sought out yourself, which is known as a private sale. According to ASIC, 90% of all car sales are arranged through finance, of which around 39% are financed through a dealership. They also noted that there are over 1,500 brand new car dealerships in Australia, which operate around 2,600 outlets.

Work smarter, not harder and do some preliminary research before you visit the dealership. You should have an idea of what vehicle you want and arm yourself with the right questions to gather all the information you need – this is a big decision after all! This extra preparation can help you score the car you want for the right price.

Once you’ve found a vehicle at the dealership, you’ll be asked to sign a contract or order form for the vehicle which is simply a record of the agreement you make with the motor dealer. It’s important the information in the contract is clear and you understand it. You might also be asked to pay a deposit to hold the car for an agreed time while you make your decision about whether to buy it. You should check with the dealer if the deposit is refundable or non-refundable.  If you decide not to buy the car during the cooling off period, you are entitled to get a refundable deposit back however, if you agree to go ahead with the purchase then the dealership will take this amount off the vehicle’s sale price.

If you choose to pay cash at the dealership, it’s worth keeping in mind that many dealers won’t give you a better deal simply for paying cash. You’ll need to be prepared by bringing a bank cheque, an official cheque that is issued by a bank. Most dealers don’t want the risk associated with taking personal cheques and you likely don’t want to be hauling in wads of cash in a suitcase like they do in the movies!

If your contract is ‘subject to finance’, it will most likely include a due date that you have to get finance approved by. Remember, you do not have to use the finance company the motor dealer recommends. It’s a good idea to look at the contract provided by the dealer to see where it mentions ‘bank’ or ‘finance’ and double-check the motor dealer hasn’t automatically included finance through their own preferred finance company. If you’ve seen a great deal, don’t miss out on it! Reach out to Rapid Loans to help get you behind the wheel sooner. As one of Australia’s leading car loan companies, the Rapid team has the knowledge and expertise to support you.

When your finance is approved through your preferred lender, which you’ve likely spent time researching and comparing, your lender will provide you with a document pack that will include a Credit Guide, Information Statement and the loan contract. It may contain other documents.

It’s important that you read and understand the loan contract and have any questions answered before signing it.

In the unlikely event that you run into any issues once you’ve purchased your car from a registered motor dealership, you should take up those issues with the motor dealership directly, and if the issue is not resolved, you could contact the Office of Fair Trading in your state or territory for advice.

It is important to note that when you take out a loan to purchase a vehicle, it is a personal loan to you and the lender does not provide any warranty regarding the vehicle. Your obligations to repay the loan will continue until the loan is paid in full. Any issues you may take up with the motor dealership does not affect your loan repayment obligations.

Should I Finance a Car Even if I Can Pay Cash?

Have you considered the opportunity costs associated with paying in cash? These are potential benefits you might be missing out on by choosing or overlooking one alternative over another. For example, the money you could spend on a car could be used in other ways such as investing in shares or paying off your home loan. As you weigh up your options it can be helpful to ask yourself what you might be giving up in the future to have right now.

Fortunately, making car repayments is accessible for a lot of people and is a very budget-friendly way to build up your credit history, although you might want to look out for high-interest rates and hidden costs which could make paying with cash more worthwhile.

The best part about financing is that your loan can be structured so that you get a fixed interest rate for a fixed term which makes your repayments predictable, so you’ll know when and how much they’ll be. At Rapid Loans, we understand that everyone’s situation is different, and we offer weekly, fortnightly or monthly repayment terms to approved applicants to work in with their budget.

We also don’t charge any fees for early payouts or additional repayments on top of the normal repayment schedule. This means that if you have additional cash sitting there, you can use it to pay off your loan sooner!

Is it Better to Pay Cash or Finance a Vehicle?


Pros & Cons of Paying Cash:

Once you’ve got an idea of the kind of car you want and added up all the associated costs involved, you should have an idea of how much cash you’ll need to pay in total. How much you can afford depends on your overall financial situation such as your income, assets, net worth and future goals.

You’ll also need to consider the costs of running and maintaining your new car, as well as the upfront cost. According to Budget Direct, the average yearly transport costs for an average two car household for major cities across Australia as follows below. This includes car loan payments and associated running costs such as roadside assistance, weekly fuel, toll roads, servicing and tyres, registration, CTP and licence costs and comprehensive insurance.

Car Running Costs in Sydney, New South Wales $22,250.88
Car Running Costs in Melbourne, Victoria $20,865.73
Car Running Costs in Brisbane, Queensland $20,582.23
Car Running Costs in Perth, Western Australia $17,993.95
Car Running Costs in Adelaide, South Australia $16,896.91
Car Running Costs in Hobart, Tasmania $16,166.64
Car Running Costs in Darwin, Northern Territory $16,529.86
Car Running Costs in Canberra, Australian Capital Territory $17,478.65

The most significant benefit of paying cash for a car, if you can afford it, is not paying interest and ultimately eliminating all repayments. You’ll also save yourself time as there’s no need to go through the application process.

Despite this, time is money so if you haven’t brought home enough bacon just yet, and still want to choose this route, you will need to budget and save. Can you wait that long for a new vehicle? This might not be a great option if you’re desperate for a new car right now because you and your family need something safer or more reliable. You might also be limited by what you’re able to buy which could be the difference between an older car or a newer car.

It’s always worth keeping in mind that the more you can save before taking out a personal loan, the less you’ll have to repay. This is also an excellent way to improve your financial discipline and learn some great long-term money management habits. After all, cash is considered king so if you’re in a position to pay with cash, it ultimately comes down to your personal circumstances as to whether it’s the best option or not for you.

Pros & Cons of Using Finance:

Opting for a loan is the most common way people purchase new vehicles so you can rely on lenders like Rapid Loans who have been operating since 2003 and helped clients across Melbourne, Sydney, Perth and all other major cities and towns across Australia.

By choosing to use finance and pay off your new car in instalments, you can continue saving money for other things, like building up an emergency fund which allows you to cope with any unforeseen expenses. If you need to purchase a car urgently, it means you don’t have to wait until you’ve saved all or even part of the money. With financing, you can drive off within a few days of your application being approved. The time varies depending on when the dealer has your vehicle and the paperwork ready.

A car loan also allows you to build and improve your credit history. Making your payments on time can be helpful when it comes to home loans and other future credit needs.

Use our loan repayment calculator to get an idea of what your repayments could be.

It’s a joyous moment when you get behind the wheel of a new car and we can’t wait for you to experience it. We pride ourselves on a fast online application process which can take just a few minutes! So, what are you waiting for? Take the next step towards finding your new car and call Rapid Loans on 1800 875 802 or apply now for a car loan to discuss how you can get started today.