Looking for a new car? You’re more than likely to need finance as well. Most people will need to get car finance or a car loan to get behind the wheel of a new car (or at least, new to them.) You may wonder what are some ways to finance your new car purchase? First you need to ask yourself some basic questions – then determine what kind of finance is right for your situation.
Setting up a budget and wish-list
Before you start looking at cars, you need to ask yourself – what will I need my car for? In the next four to five years as you’re paying off the loan, will you be adding to your family? Going on road trips? Moving somewhere with electric vehicle charging? This will whittle down the type of car you might need; next is how much you can afford in repayments each month. You may want to use the 20/4/10 rule (or 20/5/10 rule) – save a 20% deposit; take out a loan term of four years; make monthly repayments that cost no more than 10% of your net income.
Car loans – but not just from anywhere
The oldest and most trusted way to obtain car finance is by taking out a car loan or personal loan. These work in the same way as any other loan, paying off a lump sum with interest over a set period. To ensure you get the best deal, get finance from a broker instead of just accepting whatever products your bank offers. Brokers deal with many lenders, which means you could find a cheaper and better deal that could save you money.
Note well: taking car finance from the dealer is often a lose-lose situation, especially if they’re advertising “zero” or “one percent” loans. Sometimes you will be paying more for the car, as they may restrict negotiating a better price.
Car leasing
If you don’t want to own your car outright and take advantage of more regular upgrades, you can lease your car. This means paying a monthly rent – while keeping to certain restrictions. In return, your registration, insurance, and maintenance are taken care of. Of course, once the lease is up, you must return the car in good condition and under a certain mileage.
Novated leasing
You can also opt for a novated lease if you work for an employer. Novated leasing involves your company, a financier, and you as an employee leasing a car. Salary packages may include novated leases. Your employee’s pre-tax wages are deducted for business repayments, which means your employer avoids fringe benefits tax and your taxes are reduced as you’re bumped into a lower tax bracket. At the end of the lease, you will have to pay a residual value payment, funded out of your own pocket or selling the car.
Whatever method you choose, don’t rush into making a snap decision. Ask around, talk to a financial adviser, and ask for help from trusted friends or family who have done it all before. It’s always better to be safe than sorry!