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At A Glance
- A cheaper car can reduce the amount you need to borrow.
- Older or lower-value cars can be harder for some lenders to finance.
- Vehicle age can limit the loan term and keep repayments higher than expected.
- A slightly more expensive car may sometimes open up better finance options.
- The purchase price is only part of the cost when interest, repairs and maintenance are considered.
- Sometimes choosing a different car makes more sense than trying to force the finance.
Cheap Doesn’t Automatically Mean Easier
Cheap cars are a good idea, right? Well, the answer is a very definitive maybe.
When money is tight or finance options are limited, choosing a cheaper car can seem like the sensible move.
The thinking is straightforward: borrow less, keep the repayment lower and avoid taking on more than needed.
What can catch people out is that price is only one consideration when finance is involved.
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The Car Has to Work for the Lender Too
With a secured car loan, the lender is taking an interest in the vehicle as well as the borrower, so the vehicle itself also needs to be suitable.
Using the car as security means it’s tied to the loan. If the loan goes into default and the lender ultimately needs to recover the debt, they may be able to repossess and sell the vehicle.
That’s why things like the car’s age, value, kilometres, condition and even the type of vehicle can affect whether a lender is comfortable using it as security.
Different lenders draw those lines in different places. One may be happy with an older car or higher kilometres, while another may have much tighter limits.
So even if the loan amount itself looks reasonable, the car can still narrow the options available to us. And once you’ve found one you want to buy, there are other parts of the purchase we need to check before the finance can go ahead.
Older Cars Can Mean Shorter Loan Terms
A cheaper car can still leave you with a repayment that feels surprisingly high.
One reason is that some lenders place limits on how old a vehicle can be by the end of the loan term. If the car is already getting on in years, that can reduce how long we have to spread the repayments.
For example, a newer car may be eligible for a longer term of, say, 10 years, while an older one might need to be repaid over a much shorter period, like 3 years.
That means the lower purchase price doesn’t always translate into the kind of repayment drop you’d expect.
That higher repayment can put more pressure on your budget, which is worth considering if things are already tight.
Sometimes Spending More Can Be a Better Idea
We can’t safely assume that the cheapest car will automatically give you the cheapest or easiest loan.
This is where car finance can get a little counterintuitive. Sometimes spending a little more on the right car can give us a much better set of options.
Say you’re comparing an older car for $8,000 with a newer one for $14,000. On price alone, the $8,000 car looks like the obvious choice if you’re trying to keep the loan small.
But the newer car may fit more lenders, qualify for a longer loan term or attract different, potentially lower, pricing because it’s a stronger asset.
That can make the repayment gap between the two cars much smaller than the difference in purchase price suggests.
I’m not saying you should spend more just because finance is available. But if we’re comparing cars, it’s important that we look at what each one costs to finance over the life of the loan.
Cheap Cars Can Become Expensive Cars
The purchase price is only one part of what a car is going to cost you.
An older or cheaper car may already be closer to needing tyres, brakes, servicing or other repairs. If those costs start arriving soon after purchase, some of the money you saved buying the car can disappear pretty quickly.
Sometimes spending a little more can get you a better-quality car with more useful life ahead of it and potentially push some of those bigger maintenance costs further down the road.
There are no guarantees with any used car, but it’s worth looking at what you’re actually getting for the money, not just which car has the lowest price tag.
Sometimes Finance Just Doesn’t Make Sense
Sometimes the answer isn’t finding a lender willing to finance the car. It’s choosing a different car that doesn’t leave you with buyer’s remorse.
If the vehicle is very old, in poor condition or likely to need significant work, taking on debt for it can leave you paying off a car that may not have much useful life left.
Inevitably, when a car just isn’t a good buy, there comes a point where trying to finance that cheap car stops being the sensible option.
In that situation, paying cash, saving a little longer or looking for a different car may make more sense than trying to force the finance.
Not using finance also avoids taking on the extra cost and responsibility of a loan, which can become especially painful if the car needs a major repair or loses a significant amount of value.
If the loan balance ends up higher than what the car is worth, you may need to find the difference yourself if you want to sell it and the sale proceeds aren’t enough to pay out the loan.
After all is said and done, the lender still needs to be paid.
What To Take Away
Any time you’re buying something with finance, choosing wisely is important, and a good decision involves looking at more than just the price. You need to consider the car and the loan together.
Ask yourself whether the car you’ve found is really worth taking on debt for. A cheaper car can still be the right choice, but we also need to think about how well it suits you, whether it works for the lender, and what the finance will cost overall.
If you’ve found a car and want to understand how the vehicle could affect your loan options before you commit, get in touch and we can work through it with you.
Tom is the founder of BrightCredit and a finance broker focused on borrowing situations that are not straightforward. His writing helps Australians understand credit, loans, and the details that can affect their borrowing options in a clearer, more practical way.