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Financing a Car vs Paying Cash

Nov 13, 2021 | Insights

Should you finance a car through a lender or pay cash for the car outright?

Buying a car can easily be one of the more important decisions in your life. Whether it’s a new or used car, it can have a lasting impact on your finances. So, you may naturally have an important question on your mind, such as what is the best way to pay for a car in Australia?

There are two ways you can approach this – if you have the savings ready, you could pay cash outright to purchase the car, or like many Australians you could finance a car through a lender. The decision truly comes down to your personal financial preference and circumstances. So, this raises the question should you finance a car or pay cash for a car? Read on to learn more about financing a car vs paying upfront and the pros and cons of each.


Financing a car with a loan

What does financing a car mean?
Car finance is essentially a loan you can apply for from a bank or a non-bank lender to buy a car for your personal or business use. You could apply for a car loan for your first car or to upgrade your current car. You could be upgrading to a more reliable car to drop kids off at school, run errands, for a family adventure, or it just happens to be the car of your dreams!

You can even upgrade your workhorse and take your business to the next level with a car loan for your business.

Advantages of financing a car through a lender

  • Improves credit history: Having a car loan may help improve your credit history, given it can show your commitment to making regular loan repayments in accordance with the terms of the loan. Your car loan history can be also used as an indication that you are in control of your finances and may show reliability to the lenders and banks. Consistent and timely repayments pursuant to your loan contract may help improve your credit score over time and your chances of getting finance at a lower interest rate in the future.
  • Saves time: One of the many benefits of getting a car loan is that you may be able to save time and finance the whole amount needed to purchase the car. In other cases, you may only have to pay a deposit for the car rather than the whole amount up front. This can help you save precious time in the buying process, which you may have otherwise spent shopping and saving on a budget, or saving the whole amount needed to buy a brand new or a used car.
  • Tax-deductible: If you are a sole trader or running a small business, you may be able to claim the business portion of the asset as an immediate deduction, depending on your circumstances. You may want to find out if you are eligible for the
    instant asset write-off scheme, which includes new and second-hand assets. It is also important to always seek independent financial and taxation advice before making any financial decisions in this regard.
  • Redirect the cash to buy new assets: Getting approved for car finance can help you save the cash you would have otherwise used to purchase the car, and instead use it to pay a deposit on other major purchases like a new house, piece of land, or maybe for your business cash flow. Directing your hard earned savings to other important sources may not only help in buying more assets but could also help improve your credit score while regularly repaying your loan in accordance with the loan contract. If you are a sole trader, this could also free up cash flow for your business and its future growth.


Although this may seem like a great option, there are some other factors you need to consider when applying for a car loan, such as:

Monthly interest and fees

With a car loan, you will end up paying monthly interest and fees, and the interest rate may vary based on your credit score.


You could be in a long-term contract based on your agreed loan term with weekly, fortnightly, or monthly repayments. Although you may still have the option to refinance the car loan if you do decide to upgrade your car and maintain good account conduct in accordance with your loan contract.

Credit score

Having too many dishonours or missed payments on your loan can do more harm to your credit score than good. It could end up affecting your credit score negatively, and you may end up with a high interest rate on your next loan should you need to apply for another loan in the future.



Paying cash for a car

Paying cash can be a straightforward way of buying a car outright. Essentially, choose the car you wish to buy, choose the dealer you want to buy from, pay in cash, and drive away in your new ride. This raises the question; can you pay cash for a new car?

Dealers will often prefer cash payments for the car, as this means it’s a quick, assured sale and gives them the benefit of the upfront cash payment.

Here are some of the advantages of paying for a car in cash:

    • Debt-free and can save you money in the long term: Paying cash for a car can save you the extra car loan repayment cost and monthly fees you would otherwise pay over the life of a car loan. It can help you save a reasonable amount of money, and you don’t have to worry about your monthly repayments and missing the due date.
    • There’s room to negotiate: When paying outright in cash for the car, the ball is often in your court. As dealers are often eager to close the deal, you may have room to negotiate the price. With a little negotiation, you could end up saving hundreds even thousands of dollars on the purchase price.
    • Straight forward: Paying cash for a car will likely reduce the amount of paperwork you would otherwise have to fill out. If in the future, you decide to sell or upgrade, you can do so without having to pay any potential loan contract exit fees.


Did you know that Finance One consumer loans have no early payout fees? That means that you can pay out your loan early at any time without penalty.

You may also want to consider the drawbacks of paying cash outright for buying the car.

      • Lower your savings: You may end up reducing your savings account considerably by paying full cash for your car. This may leave you with limited options on a rainy day.
      • Paying cash will not improve your credit score: Although you may already have a positive score, paying cash for a car will not contribute towards your credit score, as there won’t be any history of consistent and timely repayments on any credit contracts such as a car loan contract.
      • Not a priority for the dealership: Some dealerships may prefer the commissions they receive from the customers that finance their car purchases through their pool of lenders. In that case, it may interfere with your chance to negotiate for a better price with the dealership.


Do your own research:

All things considered, financing or paying cash for a car both have their benefits. It all comes down to your own personal financial situation and preference.


Are you looking to apply for a car loan with bad credit history?

Finance One offers car loans for personal use as well as business use. We know that the road to finance is not an easy one, hence why we can consider your car loan application even if you’ve had a bad credit history. We have a genuine drive to understand and assist you in your financial journey.

To discuss your options for a stress-free loan application with a flexible repayment option, talk to one of our consultants to discuss your options on 1800 346 663.

How to get a car on finance?

When you decide to apply for a loan with a bank or a non-bank lender, they will check your credit score. A credit score is a way to determine your credit affordability. This score ranges from 0-1200 and can be used by banks and other lenders to decide if they would lend to you.

Certain lenders may charge you a high or a low interest rate based on your credit score, as it indicates your reliability to pay back the loan. You can find your credit history from the credit bureau including Experian, Illion and Equifax. To learn more about credit score and how to find out your credit score, download our free guide “How to improve your credit score.”

How to finance a car with bad credit?

Traditional banks may reject your car loan application if you have a bad credit score, as a low credit score is often associated with higher risk. However, you may be able to apply for a car loan with non-bank lenders that consider loan applications even with a bad credit history.

A word of caution – every time you make an official enquiry for a loan with a bank or a non-bank lender, it will be recorded in your credit report. While shopping for a loan, do your research before applying for a loan to avoid excessive enquiries.

If you are looking for a trustworthy lender and you have experienced a bad credit history, contact Finance One today. Our highly experienced staff can discuss your options with you to help you achieve your financial goals.

Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.

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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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