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Finance vs Paying Upfront

Apr 23, 2018 | Finance Tips

Which option is best for you?

When it comes down to buying a car, you have a big decision to make: get a car loan or pay for the car upfront. If you have the cash (or are willing to save up), it seems like an easy choice to pay for it outright.

Car loans require you to pay interest on top of the cost of the car. For example, an interest rate of 10% for a $20,000 car loan with a loan term of 2 years, will end up costing you $22,150 over the life of your loan*.

*Excluding fees, taxes, commissions and other charges associated with buying a car.

Finance has its advantages

While it may be cheaper to buy a car upfront, there are some significant benefits to opting for car finance. A car loan will:

  • Keep your savings in the bank;
  • Help improve your credit score;
  • Get your new car immediately.
Savings in the bank

Assuming you have the cash, buying a car outright will significantly reduce your money in the bank. Keeping money in the bank is important for risk prevention. If you are hit by any unexpected expenses, you have the access to funds to meet unforeseen obligations. Most car loans are customisable in terms of their repayment frequency and length. Therefore, you may be able to arrange a repayment schedule to work in with your budget and your savings aside for a rainy day.

Build a positive credit score

Your credit score is a rating used to determine your credit risk, or the likelihood that you will be able to repay a loan. Every loan you take out and successfully repay, will help improveis added to your credit score. As you establish a positive credit history, you may be able to borrow more money and possibly at better loan rates.

Once your loan is repaid, the next time you apply for a loan (whether it be for a new car or something else) you’ll find it easier to be approved.

Get your new car immediately

It could take years to save up for a car. Owning a car gives you freedom through transport. Getting to work, taking your kids to sport, picking up groceries can all become easier by owning a car. A car loan can get you on the road sooner.

For more tips and news, check out our blog. Safe travels.


The information contained in this blog is accurate only at the date of publication. 

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Makala Elliott

Makala is the Marketing Manager at Finance One. She has worked in the Finance and Lending industry for over 10 years, gathering a wealth of experience. She is passionate about helping Australians get back on track with their finances by passing on her knowledge.

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