Pros and cons of different car finance options

Saving up for a new or used car can take a long time and when you need a reliable form of transport for work and family use, then it is often better to consider car finance schemes. Perth and Melbourne based finance companies offer a number of ways in which to pay for the cost of your car, but it is important that you review which method is going to be best for you. There are pros and cons to each of the four main ways that are normally offered with car payment schemes which are as follows:

• Personal loans,
• Car manufacturers’ deals,
• Car dealer finance packages, and
• Home loans redraw option.

Personal loans

There are a number of personal loans advertised with banks, building societies, and finance organisations. Personal loans can be used to pay for a number of items from cars to holidays or furniture. There are usually two types of loans, secured and unsecured, and on the positive side secured personal loans usually offer cheaper interest rates than the unsecured ones. However, if you don’t keep up with the repayments with a secured loan, your car can be repossessed, this type of loan is only available for new cars or reasonably new, and the insurance premiums higher than those for unsecured loans.

The pros for the unsecured loan is that as the car isn’t the security linked with the money you have borrowed, it is unlikely to get repossessed if you don’t make the payments and you can get an unsecured loan on a used car. The negative for this type of loan is that you would be paying a higher interest rate than that of secured loans.

Car manufacturers’ deals

Often a very tempting offer as this type of car finance option is often advertised as 0% finance, but it is really important that you read the full terms and conditions, especially the small print that details if you will be subject to what are known as “balloon” or lump sum payments. The pros for car manufacturers’ deals is the low or nought percent interest, so if you have the money you might want to invest it and save on the interest whilst taking the manufacturers’ deal. On the negative side, you need to check if the repayments at this level of interest rate apply to part of the loan. In some cases it could be 0% for 3 years and then you could find yourself having to stump up a lump sum which could be for around 50-70% of the cost of the car.

Car dealer finance packages

Many drivers favour this type of car finance option and the interest rates are around the same level as those of personal loans. Car finance is a very convenient method of taking out a loan which is a plus for a lot of borrowers. On the down side, you do need to check out how much the company will charge for fees or commission charges as well as any unnecessary insurance options that come with the package.

Home loans redraw option

This last method is usually a cheaper way of paying for a car than taking out a personal loan providing you pay the redraw back over the same time period, and the interest rate is low. However, you have to ensure that there is enough equity in your property plus that you have a redraw option or overdraft linked to your mortgage. The other negative to this option is that the longer it takes you to pay then obviously the more interest accumulates. So before deciding which route to take check out the options available and speak with your local car finance and home loans specialist in the Perth and Melbourne area and you could soon be driving the car of your dreams!

To discuss which finance options best suits your budget, you can seek out a professional at Westminster National.