Vehicle financing is a way to own a vehicle without having to pay the vehicle’s full price upfront. It involves you, the borrower, borrowing money from a lender, which can be a bank or another financial institution.

You’ll need to pay back the total sum of your borrowed loan, as well as interest on that loan, and you’ll need to do it within a certain period of time (the loan’s term). Normally, you’ll pay back your loan in scheduled weekly, fortnightly or monthly payments.

Some vehicle financing also includes balloon payments. A balloon payment is a large, one-off payment made at the end of your loan term (it can be up to 50% of your loan). Although making a balloon payment can be intimidating, lenders who offer balloon payments don’t make you pay interest on the balloon part of your loan, which can help reduce the total interest that you pay.  

Leasing and financing a vehicle are two very different things, but many people get them confused.

Leasing a vehicle simply means that you’re renting a vehicle that someone else owns. You’ll normally pay a set amount of money each week, fortnight or month in exchange for being able to use the vehicle.

Financing a vehicle means that you’ve borrowed money to buy the vehicle. Like leasing, you’ll pay a certain amount of money each week, fortnight or month for a certain amount of time. Unlike leasing, you’ll own the vehicle once you’ve paid back the money that you borrowed. 

Car finance interest rates can range from about 2% all the way up to 15% or higher. Interest rates vary depending on factors like:

• Your credit score
• The loan amount
• The type of loan (secured or unsecured)
• The loan term
• Whether a balloon payment is involved
• The lender
•  

To find a car loan with an affordable interest rate, get in touch with one of our vehicle finance brokers.   

Financing a car can, in many situations, be a better option than buying it outright with cash.

The obvious benefit is that financing lets you afford a car even if you don’t have the money right now. Saving up enough for a new vehicle isn’t easy, but financing means you can purchase it with regular, affordable payments.

Financing a vehicle can also be a good choice even if you have the funds on hand. Spending tens of thousands of dollars at once means that money is no longer available for emergencies or investments; many Australians prefer to keep their money in reserve and only outlay through small, regular repayments.    

Vehicle financing does have several risks, though, which you should review before taking out a loan.

• Interest on your loan means you’ll end up paying more than you would have if you bought the vehicle outright.
• If you can’t make your vehicle’s repayments, it may be repossessed.

To make sure you’re getting the best loan for your financial situation, talk to a specialised vehicle finance broker. They’ll be able to guide you through the process of getting a loan, as well as fully explain any risks.