What’s Cheaper Between Car Finance vs Home Finance vs Personal Loan?

When it comes to purchasing a vehicle, the way you finance it can have a big impact on how much it costs you over time. Whether you’re considering a traditional car loan, tapping into your home finance, or taking out a personal loan, it’s crucial to weigh your options. We’ll help you figure out which option might be the cheapest and most suitable for your financial situation, with Subaru’s expert advice to guide you along the way.

Comparing Financing Options

Car Finance

Car finance is the most straightforward option for purchasing a vehicle. Offered by banks and dealerships, this type of loan is specifically tailored for car buyers. Calculating car repayment is easy, as you can choose between fixed or variable interest rates, and loan terms usually range from three to six years. The car itself often serves as collateral, which can secure better interest rates.

• Pros: Lower interest rates compared to personal loans, fixed repayment plans.
• Cons: The car can be repossessed if you default on the loan, and the loan term might limit your cash flow.

Home Finance (Mortgage)

Some people opt to use the equity in their home to purchase a car, typically by refinancing their home loan or taking out a second bond. This method tends to offer lower interest rates because home loans are usually long-term and considered lower risk for lenders. However, using your home loan for car financing means that you are paying off your vehicle over a much longer period, which could increase the total cost.

• Pros: Lower interest rates than car or personal loans, possibility to stretch payments over a long term.
• Cons: You risk your home if you can’t make payments, and you may end up paying more overall due to the longer loan period.

Personal Loan

Personal loans are another option for buying a car, though they often come with higher interest rates compared to car finance or home loans. This type of loan is unsecured, meaning you don’t have to offer collateral, but this also makes them riskier for lenders, hence the higher rates. The loan terms are typically shorter, which could make your monthly payments higher.

• Pros: Flexibility in how you use the loan, no collateral required.
• Cons: Higher interest rates, shorter repayment terms, higher monthly payments.

Cost Comparison

When comparing these financing options, it’s essential to look beyond monthly payments. Carefully calculating car repayment based on interest rates, loan duration, and additional fees ensures you get a good starting point for an estimated car payment.

Total Cost of Ownership Analysis

• Car Finance: Car loans typically range from three to six years, with moderate interest rates and the car itself as collateral. In terms of total cost, this is often a mid-range option for most buyers.
• Home Finance: Using your home loan may result in the lowest interest rates, but stretching the repayment over a 15-20 year mortgage term could result in higher overall costs. It might be appealing short-term but costly in the long run.
• Personal Loan: Personal loans tend to come with the highest interest rates and shorter terms, leading to higher monthly payments. The advantage is that you pay off the loan quickly, but the total cost might be higher due to the interest rates.

Which Option is Cheaper?

Based on a cost-efficiency analysis, car finance is often the most balanced option. While home finance offers the lowest interest rate, it can significantly increase the long-term cost due to the extended repayment period. Personal loans, on the other hand, may provide quicker payoffs but tend to come with higher interest rates, making them the most expensive in terms of monthly payments.

• Car Finance: The best balance of interest rates and loan terms, with affordable monthly payments.
• Home Finance: Lower interest rates but higher long-term costs if stretched over many years.
• Personal Loan: Higher interest rates and higher total costs but a quicker payoff.

Subaru Finance Options

Subaru offers a range of flexible finance options that cater to different customer needs. Whether you’re considering a traditional car loan or other avenues, Subaru’s finance team is here to help you secure the best deal for your next vehicle.

• Special Offers: Subaru regularly runs deals and promotions that can help reduce the cost of financing, from lower interest rates to extended warranty options.

Choosing the right financing option is a big decision, and Subaru is committed to helping you make the best choice for your financial health. With our transparent approach and tailored solutions, we’re here to guide you every step of the way—from your initial purchase decision to long-term vehicle ownership.

Frequently Asked Questions (FAQs)

Is it advisable to take a loan to buy a car?
Yes, taking a loan to buy a car can be a smart decision if you find the right financing option with affordable terms and interest rates. It helps spread out the cost while preserving your savings.

Which bank is best for car finance in South Africa?
Many banks in South Africa offer competitive car finance options, including ABSA, Nedbank, and Standard Bank. It’s best to compare rates and terms across multiple lenders.

What is a good credit score to buy a car in South Africa?
A good credit score for car financing in South Africa is typically above 600. Higher scores will help you secure lower interest rates.

What is the minimum salary to qualify for car finance in South Africa?
The minimum salary requirement varies by lender, but most banks require a monthly income of at least R7,000 to qualify for car finance.

How do I choose between car finance, home finance, and personal loans?
Consider your financial goals, the interest rates, and the loan terms. If you want to pay off the car quickly, personal loans or car finance may be ideal. If you’re looking for lower monthly payments, home finance may be more suitable.

For more guidance on choosing the best financing option, visit a dealership near you to consult with Subaru’s expert finance team, or see the latest financing deals available on the Subaru website.