How should you be financing your car

car sales

Only 50 per cent of students that graduate high school are financially literate. What does that have to do with cars? Well, if you need a car, you need money.

And if you lack financial literacy, chances are that your savings will not be paying for your new car. Technically, you shouldn’t be using up all your savings to buy a car either. Let us look at a more elaborate explanation in this article and hope to increase your financial literacy by a small amount.

Firstly, we need to understand if you are actively considering the cost of owning a car, not just the cost of buying it. This essentially means that other than the cost that you will be paying to procure the car and gain ownership of it is only a part of the investment that you will be putting into this deal. Owning a car has additional costs like:


  1. Car Insurance
  2. Car Maintenance (Servicing, tyres, etc.)
  3. Car Accessories for added comfort (assuming you wouldn’t want to have an empty vehicle, and will be adding accessories time and again, to improve utility.)
  4. Fuel
  5. Registration
  6. Depreciation (The price of your car reduces every year by a certain percentage to account for the usage of the car in that year.)

All this amounts to about $10000 for an average Australian with a small car.

Now that you know the actual cost of owning a vehicle, let’s talk about an alternative that more than half of Australia uses to commute to work and otherwise – public transport.

Taking a bus or train to work and back home will cost you a lot lesser in terms of the money spent, but costs about the same when you calculate the equivalent of the time spent in public transport. It totally depends on how you place your priorities and consider more important.

Next is the fun part, trying to choose a car. You select a colour, a model and you put in a lot of effort and research into it; deciding which colour suits your personality and which car suits your needs.

Make sure you understand that a car is a utility product before it is a style statement. You might want to look great driving your car, but the satisfaction from that goes away within a few odd days. Then you’re left with a car, and if it doesn’t fulfil your basic needs, you will eventually end up regretting the purchase.

This is the reason a lot of people wonder if a car is a good investment. This is currently being debated without an actual conclusion, so we’re going to present both the ideas and leave your decision to you.

One conclusion state that a car is an asset because it provides utility for a long time and can be sold for half its price within five years. The debating statement is that a car is a liability because it depreciates with time and the amount of money spent on the car cannot be recovered.

In our opinion, a car is a utility product. Since it offers a resale value after a reasonable period of consumption, it could be considered a good investment if you know the right time and the right way to get rid of it. You can also consider selling your car for cash to scrap car removal services. These services offer a good price for cars that are unwanted or are difficult to sell to a customer.

Even though most people do not consider paying cash for a vehicle appropriate, because the current value of cash is higher than what it will be after years. But think about it, if you take a finance option, you will have to pay interest on the borrowed amount, which will essentially be the same as paying the cash right now. In any case, we assume that most car buyers would want to keep their cash for other important purposes or emergencies.

Let us now briefly look at the options available to finance a car:

  1. Dealership Finance: Its simple, and easy. The dealer that gives you your car will also look after your finances. They will ensure that you get a good deal according to your needs and expectations. The only drawback of using a dealer finance is that the chances of you getting ripped off are high. Most dealerships add their own commission percentage to the financing options and offer you a higher price than the actual price.
  2. Bank Loans: Go to the bank, ask them for a car loan, get a pretty high percentage. But the one thing that is guaranteed when you take a car loan from a bank or any other financial institution is that you will be secure in your transactions.
  3. Personal Sponsors: Even though this method is highly discouraged, you might consider borrowing from someone who can afford lending the money, but make sure to offer a relatively lower return rate. This way, you won’t have to return a higher sum of money to an institution. Although this method might require the involvement of rich friends or parents, which most of us might not have. So, it should not be considered a very credible source.

It is important to remember that you shouldn’t be spending an amount on a car that might disrupt your credit rating. Another matter of concern is to be aware of all the potential fees that you may have to pay. These decisions might affect your future finance transactions, not necessarily in a positive direction.

If you have any more concerns regarding vehicle financing options, consider talking to a friend who has used these options. A personal review gives in-depth information about a product or service.

Finally, educate yourself to a be a more financially literate buyer to be a more financially stable consumer.