New or used? It’s a question that many Australians ponder when shopping for a vehicle.
At Fox Finance Group, we have helped hundreds of customers to find the perfect car loan, and as Australia’s lending specialists, we can help you to make the right decision.
But which one is best and what are the pros and cons of each option? In the following guide, we’ll help you to decide if you should get a new or used car loan.
You can’t beat the look and feel of a new car. Even the smell is magnificent. But there are other advantages that extend beyond that famous “new car smell”.
Despite the clear benefits, there are also some big downsides to getting a new car loan.
Although exact figures are hard to find, there are an estimated 3 million used car sales in Australia every year. Aussies are considerably more likely to buy used than new, and there are some clear advantages to doing so.
There are several disadvantages to buying used cars vs new cars, the most prominent of which include:
Whether you choose a new or used vehicle, if you choose car finance, the lender will provide the funds, define the loan term, and then charge interest. Most car loans are secured, which means that if you fail to meet your payment obligations, the car will be repossessed.
Pay close attention to the following when looking for a car loan:
The interest rate and term will define how much interest you pay. It is charged per annum, so the longer the loan term is, the more interest you will pay.
For example, if the rate is 6.5% on a 5-year $45,000 loan, you will pay $7,829 in total interest.
You must be able to afford the minimum payment, with no exception, and you shouldn’t let yourself be lured by a low monthly payment that results in excessive interest.
For instance, let’s assume you borrow $10,000 at 6.50%. If you were to repay it in 3 years, you’d face a monthly fee of $306.49. If you choose 7 years, that drops to $148.49.
The latter is clearly the better option, right? Not really, as that reduced monthly payment will cost you $2,243 in total interest, compared to just $1,034 for the 3-year option.
Many car loans include something known as a balloon payment. It is an agreed-upon sum that is paid at the end of the loan. If you tie up more of the loan amount into this sum, the monthly payments will be smaller, but the interest will be higher.
Depending on the loan that you choose, you may be required to cover additional fees, including upfront costs, late payment fees, discharge fees, and more.
Assessing Individual Needs and Preferences
Ultimately, the general pros and cons don’t matter and whether you should opt for a new or used car loan depends on your personal situation, including:
An expert broker can help you to choose the right option, find the best deal, and get you past those initial steps. They can discuss the benefits of new vs old cars, highlight the costs involved, and leverage their expertise to guide you. So, if you’re struggling to make a call, seek professional advice.
Reliability vs depreciation; lower cost vs higher interest rates—there’s a lot to consider. Ultimately, there is no “better” option here, but as long as you assess your situation, consider your options, and then work closely with an expert broker, you will get the deal that’s right for you.
Contact one of the expert lending specialists at Fox Finance Group today to chat about car loans and connect with the country’s best lenders.
After graduating year 12, Dan began his banking and finance career at Westpac Banking Corporation in Brisbane in 1988. He worked for the bank for seven years, excelling in his career and working his way up to management.