The smarter ways to finance a new car purchase

Cars can be an expensive way to get from A to B and not everyone has the cash to pay for a new vehicle straight away.

But as the senior editor of Car Advice Mike Costello told the Today Show, there are plenty of financing options available to motorists wanting a new set of wheels.

TODAY: Most people choose to finance a car. Is financing a good idea?

MIKE: Clearly it’s better to pay outright if you can, to avoid interest. But most of us with mortgages and other costs probably aren’t in a position to do this. One thing you can do is put a decent deposit down to reduce your repayments.

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TODAY: Do most people use finance?

MIKE: Our figures indicate up to 87 percent of people finance their new vehicles. It really is the reality for most of us, either because it’s so tempting, or the only option. Car tech is changing so much that people usually want new vehicles. Australians buy 1.2 million new vehicles a year, which is a high proportion of the population.

TODAY: What are some of the car financing options?

MIKE: One option is a secured specialised loan/lease. This is provided by a finance organisation like NLC and sometimes done at the dealer (about 35%).

Think about finance before your purchase, work out your comfortable monthly payment, and make the term as short as you can. Be aware of the balloon payment at the end.

Typically it’s a good option for you if you rarely use your car for business purposes, and your employer doesn’t have a novated leasing program.

Another option is an unsecured loan such as a personal bank loan or credit card. With these the rate is often comparatively high.

You could also draw on your mortgage. This may seem appealing but the issue is you counter the low rate by making it a long term. You’re also mixing a depreciating asset with an appreciating one.

Manufacturer-funded finance deals is a tempting option when financing a new car. For example Nissan offers 0.9% and Alfa’s 1%. These deals are used as a sales pitch. Just be sure it’s a car you truly want, because if you sell it early you’ll lose money on depreciation.

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TODAY: Novated leases are popular with big businesses. How do they work?

MIKE:  Many employers team up with providers. To see if this is available to you talk to your HR. A novated lease involves regular payment in the form of a salary deduction that covers the car repayments, plus insurance, registration, fuel, tyres and servicing. Big providers can negotiate good deals because of their scale. The user-chooser model lets you choose a car you like. Very tempting if offered and also tax-effective.

* In highlighting particular offers we are not making specific recommendations as this article does not cover all available products and may not compare all features relevant to you. Any advice provided is general in nature and does not take account of your needs, objectives or financial situation. Individuals should consider their own circumstances, and if in doubt seek appropriate advice, before proceeding.