Car Finance VS Car Loan Pros and Cons

car finance vs car loan

One of the best feelings in the world is when you get to the car dealer and throw in some cash and then just drive away in the car of your dreams. Unfortunately, real life for most of us mere mortals doesn't work that way. Not everybody has $15,000 lying around to buy a brand new car.

So what do you do? Do you just do without a vehicle to save up on costs (petrol, maintenance, insurance, loan payments, etc); do you take out a loan and plan your budget around an initial deposit and monthly fees; or do you lease a car (with smaller recurring fees)? Obviously, the first option is the least desirable considering that a car is practically part of one's basic needs. With so many bills to pay and the unlikeliness of one being able to afford purchasing a vehicle outright, the best way to go about it is to finance a vehicle through a lender.

While the traditional and most straightforward way to do this is through a car loan, it isn't the best for everyone. This doesn't mean that car loans don't come with some advantages. Auto loans help:

  • Build equity in the vehicle
  • Lower long term costs with lower interest rates
  • When payments are completed, no residual payments are required
  • Allow you to modify the vehicle mostly without restrictions imposed by other car finance options.

However, there are disadvantages to auto loans:

  • You need to have good credit to be eligible for this
  • Recurring payments are higher
  • Down payments or initial payments are higher, especially if you want your recurring payments to become lower.
  • Down payment needs to be in the form of either cash or trade in.
  • This type of asset quickly depreciates over time, especially after purchase. This means that after completing payments, the car may be worth very little should you choose to sell it.
  • Maintenance costs become higher after payments are completed because of its age.

Another way to acquire a vehicle is through a car lease. Like a car loan, you pay for the use of the car and its depreciation as opposed to buying the vehicle outright. Its advantages are:

  • Is more lenient with people who:
    • Have bad credit or defaults
    • Are under 25 years old
    • Seniors
    • Those with disability pensions
    • Start-up business owners
  • Because of this type of clientele, repayment options are more flexible throughout the term.
  • Minimal down payment/standard deposit
  • Cheaper recurring payments helping you with cash flow
  • Easier on budgeting because of lower repayments and maintenance and insurance covers (usually packaged with the vehicle)
  • Offer better tax deductions for vehicles
  • You have the option to upgrade before or after your term (consult with your finance manager)


Of course, this also comes with a few disadvantages:

  • You can't modify the vehicle during the term
  • Residual payments are required after payments are completed (see your Terms and Conditions)

When it comes to getting a car, it's all about choosing an option that fits your financial and lifestyle needs. If your credit standing is spotless and you can afford to pay more initially, as well as for the duration of your term, buying outright or a car loan may be for you. However, if your finances don't allow for much wiggle room, you're better off with a financing solution that allows you to keep your cash flowing.


Bad credit or not, having a more flexible cash flow is always going to be an advantage. At Alpha, we will help you get the car of your dreams while freeing up more of your weekly funds. Apply for car finance in Brisbane, Gold Coast, Sunshine Coast, Melbourne, Sydney, and Adelaide with Alpha! Remember that we look at your future and not your past. Take our 60 second approval or give us a ring at 1300 25 74 26 so we can discuss the best options for you.