Financing options

Cars depreciate rapidly so it makes sense to minimise finance charges. But paying in cash won’t always score you a discount. Car retailers worked out long ago that they can make more money per customer by offering dealer finance. That said, if you don’t have the folding stuff on hand, head to lenders like Heritage Bank ( 5.14%) or First Option Credit Union ( 4.99%) for wafer thin rates on personal loans secured by a term deposit.

When it comes to traditional car loans, mutuals like credit unions, building societies and customer-owned banks are highly competitive. Check out the likes of IMB ( 5.99%) and BCU ( 5.90%) plus non-bank lenders like carloans.com.au ( 5.44%) for super-low rates.

Dealer finance can seem like an easy option however the best deals (we’re talking near-zero interest rates) tend to be reserved for self-employed borrowers with an ABN. If you’re eligible, watch out for ‘ balloon payments’ – a lump sum, often amounting to several thousand dollars, that may fall due at the end of the loan term.

Don’t overlook your home loan as a source of low cost car finance. If you’re ahead with repayments, redraw may be an option. Or it may be possible to draw on home equity through a loan top up or by refinancing to a bigger loan. The downside is that you’re using long-term debt to finance an asset, which ( unlike your home), will fall in value over time. That can mean paying a solid overall interest charge on the cost of your car. The only way around this is to pump extra repayments into the loan to pay off the vehicle as quickly as possible.