Financing your new wheels - your options made simple

Looking to get on the road in a new set of wheels? Car financing can be a bit of a minefield when it comes to knowing what’s going to be the best bet for you and your financial circumstances. Are you better off paying cash, taking out a car loan, leasing or getting dealer finance? 

We’re here to help you weigh up your options with our quick and easy guide to some common ways to finance that sweet ride:

Buy outright with cash

Already got some savings tucked away or confident you can squirrel away enough cash in the time you need to buy your car? If so, buying your car outright could be the right option for you.

When you pay cash, once the deal is done, your new wheels are just that - all yours! No ongoing loan repayments or debt stress, plus, you’ll end up paying less for your car overall because you won’t be paying interest on borrowings.

Top tip:

• Don’t leave yourself short when it comes to savings - make sure you leave enough to cover car repairs and other out of the blue expenses.

Secured or unsecured car loans

The difference between secured and unsecured loans is that a secured loan requires you to secure an asset (like your vehicle or home) to the loan, whereas an unsecured loan does not. With secured loans, interest rates are often lower and it may be easier to get loan approval when you have an asset secured against your loan. On the other hand, if you’re ever in a position where you can’t make your loan repayments and you default on your loan, your lender can use your secured asset to recoup those loan costs. 

With unsecured loans the lender carries a higher level of risk, so interest rates tend to be higher, plus, without an asset tied to your loan, your lender will often ask for more evidence to show you’ll be able to service your loan.

Variable and fixed loans

If the certainty of a locked-in interest rate and repayments that stay the same sound good to you, a fixed rate loan could be a great choice. Fixed loans offer less flexibility than variable loans - which usually give you the ability to make extra loan repayments without penalty and a redraw facility so you can access additional payments you’ve made if you need extra funds. With variable rate loans though, interest rates can vary over the life of your loan, so your repayment amount could go up and down too.

Top tip:

• Ask yourself if you’re likely to want to make extra repayments on your loan or if locking in a low fixed rate would be a better fit for your financial situation.

Novated leasing through an employer

It’s a bit out of the box but novated leasing is a financing option that often comes with lower repayments and running costs like rego, insurance, servicing and fuel bundled into the lease package. Novated leasing is usually part of a salary package arrangement offered through an employer - but even though the total value of your salary package may be higher, you'll usually pay less income tax because your tax rate will be calculated on your net salary after your leasing costs are deducted.

Top tip:

• Be aware that you may need to pay a lump sum, of as much as 50% of the original value of your car, when your lease contract ends.

Finance through a dealer

Opting for dealer finance, where your car dealership brokers finance for you on the spot, can definitely seem like an easy, hassle-free way to get your new car on the road sooner. But buyer beware - dealer finance often comes with a few little surprise packages like account fees, higher interest rates and penalties for making early loan repayments. 

Top tip:

• Make sure you do the math to find out whether you’ll be better or worse off over the life of your loan than you would be with a different loan option.

A great little car loan to get you on the road?

Firefighters Mutual Bank Car Loans¹ offer competitive rates, no ongoing fees, and flexible repayment options to suit you. Plus, you can finance car accessories like navigation systems, insurance and security within your loan amount too. Keen to know more?

Explore some car loan options here.

This article was originally published in June 2021 and updated in October 2021.

1 Membership eligibility applies to join the Bank. All applications for credit are subject to our responsible lending criteria. Fees and charges apply. You can find our Consumer lending terms and conditions online or from any of our offices.

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