Five ways to finance a car purchase

More and more consumers are now in the market for a new vehicle, according to the latest data from the Federal Chamber of Automotive Industries.

Australians purchased 98,328 new vehicles in August, making it the second-biggest August on record. Also, the number of new vehicles purchased in the first eight months of 2024 was 5.3% higher than the same period last year.

So if you're planning to buy a car, SUV, motorbike, ute or truck at some point this year, you're not alone.

Here are five ways to finance your purchase, including the pros and cons of each.

Pay cash

Paying cash is the cheapest option, because you won’t have to pay interest or loan fees. Also, it’s the simplest, because you won’t have to sign any loan contracts or commit to monthly repayments.

However, it can also be the slowest option, because you won’t be able to buy your vehicle until you’ve saved all the funds, which might take years.

Refinance your home loan

If you have more than 20% equity in your property, you can ‘cash out’ some of that equity – via a refinance – and use it to either buy a vehicle outright or fund the deposit on a car loan.

The upside of this approach is that it lets you turn paper wealth (your equity) into real-life money to buy a real-life vehicle. 

The downside is that it forces you to take on more debt and involves quite a bit of paperwork.

Get a car loan from your bank

This offers some convenience, because you’re already registered with your bank.

However, you still have to provide all the same documentation that another lender would demand. Also, you might have to settle for a substandard deal, because there are many other lenders in the market, and, chances are, at least one of them could offer you something better.

Get a car loan from the dealership

Packaging your car and loan together can also be convenient.

However, it’s generally a more expensive option than shopping the market, because most dealers work with just one or a limited handful of lenders. So, just like going to a bank, you’re likely to get a substandard deal. 

Get a car loan from a broker

Sourcing finance through a broker is less convenient than doing so through a dealer.

But there are three big advantages. First, a broker has a larger panel of lenders than a dealer, which increases your chances of getting a better deal. Second, a broker is much more knowledgeable about finance than someone who works at a dealership, which means they can give you better advice. Third, a broker won’t try to sell you a car at the same time, which means you can evaluate their advice on its merits.