New car prices rise but smart financing makes ownership affordable

As new car prices and cost of ownership rises, innovative financing options are making buying a new car more accessible and affordable.

Imagine driving away in a brand-new car for as little as $82 a week – the cost of a typical gym membership.

It can be done, as several car brands are introducing innovative new financing plans that won’t break the bank.

Buyers still need to do their homework before making decisions, especially as the cost of living crisis is pinching our wallets.

According to Canstar Blue the average spend on a new car is $41,516. Younger buyers spend even more – $45,056.

And the purchase price is only half the battle. The cost of running a car can be equally hefty.

Figures from the Australian Automobile Association’s (AAA) Transport Affordability Index for Q1 2024, reveal the typical weekly household transport cost in capital city households is $466.57.

That includes the purchase price, insurance, registration, fuel, maintenance and repairs.

Of the $466.57, car loan payments alone account for approximately $210 per week, representing a significant portion of these expenses.

Car brands are introducing innovative financial options for new car buyers. Picture: Supplied

Here’s a look at some of the financing options out there:

Low-Interest Financing:

Many brands are rolling out low-interest rates, making monthly payments manageable without causing a financial workout.

Jacaranda Finance CEO Daniel Wessels said low or no-interest financing could seem “tempting” when buying a car, but buyers shoulder know what to consider before “signing on the dotted line”.

“First, look at the total cost of the loan, second, consider the loan terms, lastly, sometimes you have to choose between a cash rebate or a low-interest rate,” he said.

Wessels recommends reading the T & C’s to avoid hidden costs and surprises down the road.

“Be sure to read the terms and conditions carefully for any ‘special offer’ or ‘limited time only’ deals,” he said.

Balloon Payments:

Balloon payments allow you to pay a smaller amount each month and defer a larger chunk of the cost until the end of the loan term.

Wessels explained that balloon payments can be “great” for those with variable incomes.

“For instance, freelancers or seasonal workers because they offer lower monthly payments and help manage cash flow,” he said.

However, he added that big lump sum payments “can catch people by surprise”.

“If they haven’t factored this into their budget or forgotten about it, and, if you can’t pay them back, you might have to sell the car or take out another loan,” he said.

Guaranteed Future Value (GFV) option allows buyers to secure the value of their car at the time of purchase. Picture: Supplied

Leasing Options:

For those who like to keep things fresh, leasing is a great way to drive a new car every few years without the long-term commitment.

Wessels said leasing usually meant lower monthly payments compared to a traditional loan but it did come with a downside.

“One big con is that you don’t actually own the car at the end of the lease. It’s kind of like renting – you’re paying to use it, but it never really becomes yours.

“Another thing to watch out for is mileage limits. If you go over, you’ll end up paying extra fees. Lastly, while those low monthly payments are great, leasing can be more expensive in the long run.” he said

Guaranteed Future Value:

With this option, you lock in the future value of your car at the time of purchase.

Wessels said Guaranteed Future Value was a “smart” option given the volatility in the new and used car market post-Covid.

“One of the biggest advantages of GFV is the flexibility it offers at the end of the finance term,” he said.

However, Wessels said there are a few points to be aware of.

“They typically apply only to new vehicles, and they are attached to the manufacturer’s finance deal. You’ll also need to stick to the agreed mileage limits and keep the car well-maintained according to the manufacturer’s guidelines,” he said.

The new 2024 Skoda Kamiq Select model starting from $33,990 drive-away. Picture: Supplied

Skoda, for instance is offering financing with guaranteed future value (GFV) plus a seven-year unlimited kilometre warranty.

Their 2024 Kamiq Select model, starting from $33,990 drive-away, will cost owners as little as $82 per week with a 20 per cent deposit at 6.99 per cent. That’s a hell of a lot less than then $466.57 a week average.

Product and public relations communications manager Volkswagen Group Daniel DeGasperi said the website had an easy-to-use repayment calculator.

“If you go to our websites, you get to set the terms, it’ll adjust your GFV and weekly repayments,” he said.

If you want to add an option pack to the Select model, it’ll adjust and show you what it’ll cost per week.

DeGasperi said the aim was to make car ownership as accessible as possible.

“Especially in these challenging times, people want to know how much things will cost them, before they step foot in a car dealership and now they can do that,

“You can now log in, in your leisure time, when you get home from work, you’ll see it’s all there online, find out what suits you; three years, four years, 20 per cent or 80 per cent deposit,” he said.

But it’s not just Skoda offering deals. Toyota has competitive low-interest rates and leasing options, Ford offers guaranteed future value programs and Hyundai and Kia are expanding their leasing options.

Originally published as New car prices rise but smart financing makes ownership affordable