It’s a sad and well-known fact that a new car’s smell lingers much longer than it’s worth. For most of us, our cars will be our largest and fastest depreciating asset. And, by fast, we don’t mean the speed with which you drive it from the dealer. We mean the rate at which its price tag plummets.

And yet, we are buying cars in record numbers. According to a Roy Morgan Research report, more than 740,000 Australians plan to buy a new car over the next 12 months.

The good news for those buyers is that new and used cars in Australia are at their most affordable in 35 years.

So what is the best way to pay for those new wheels? Haven looks at the options.

Savings

Because a car loses its value — and loses it quickly — the smartest option is to avoid going into debt to buy one. Of course, that is much easier said than done, especially if you have a larger family to cart around or want a car of a certain standard, which most of us do.

If you haven’t been able to save the entire amount, make as large a down-payment as possible to keep borrowings to a minimum.

Equity

The key to managing debt is to pay down those with the highest interest first and borrow as cheaply as possible. If you have the capacity to draw down on your mortgage, the interest is likely to be about 5 to 6% cheaper than that on a car loan.

However, you need to ensure you pay the car off with extra mortgage payments within about five years to take advantage of those savings. While car or personal loans cost more in interest than home loans, they also span much shorter periods. If you draw down $30,000 on your mortgage for a car today and then take 25 years to pay it off, you will pay thousands more in interest over the life of the loan than if you had taken out and paid off a five-year loan at double the rate.

Car finance

There are plenty of personal loans and car finance deals available to buyers who don’t have any home equity. Just make sure you borrow within a budget, allowing for potential interest rate rises and other increased living costs.

Just as you shop around for the best deal on a car, shop around for the best rate on finance. If buying from a dealer, you will be offered finance but it may be more expensive than taking out a loan with a financial institution. Dealer finance also usually includes the first year of insurance at a premium. Because the cost of insurance is wrapped up into the repayments, many consumers don’t realise they are paying way more for their insurance that first year than if they took out a policy directly themselves. Many unwitting car buyers continue to pay the hefty renewals in subsequent years, unaware it is well above what other insurers would charge. Borrowers should also be aware financed cars generally attract higher premiums, even if you arrange your own insurance.

If you’re looking to borrow money to purchase your car, please get in touch as we’re your one stop shop for all things finance. While home loans are our expertise, we can also tap into the panel of lenders we represent to help find you the right car loan that suits your needs.