Buying a car is always exciting – whether new or used, it’s still ‘your new car’. By the time you settle behind the wheel, all you’ll be thinking about is the freedom of the road. The total cost of your new wheels and the size of your monthly payments will be vague details you can’t be bothered with as you savour the thrill of independent transport.

Besides, it’s too late to change your mind if you already have the car keys. Because that means the deal has been done and you’re locked into a vehicle finance contract. That’s why it’s a better money choice to consider different financing options while you’re still in the 'looking around' phase, trying to get a sense of the market and what you can afford.

Those options are governed in part by the cost of the car you want to buy. If it costs more than R400,000 (the maximum limit of a personal loan) you’ll need vehicle finance. Although, you can of course secure vehicle finance for cars that cost less than R400,000, too.

But if the vehicle costs less than R400,000, you have another option – you could afford it with a personal loan.

Whichever option makes more sense depends on your circumstances and the car you want to buy. Weigh up the pros and cons of each to decide which solution is the most cost-effective.

The pros and cons of a personal loan

The great thing about a personal loan is that it comes with no strings attached, apart from your obligation to make the payments faithfully. Your average personal loan is unsecured, meaning you don’t need to provide collateral. It’s offered at a fixed interest rate so your repayment amount doesn’t change, and you can spend the money on whatever you want. So, there are no restrictions on the age or the price of the car you choose to buy.

You don’t have to put down a deposit as a condition of a personal loan, but if you have a deposit saved, you can use it to reduce the size of the loan you need. Although a fixed interest rate means that your repayments won’t change when interest rates rise or fall, it’s important to remember that the interest rate on a personal loan will typically be higher than that on a car loan.

Another downside to using a personal loan to buy a car is that you’ll need to repay the loan over a shorter period. A typical personal loan is paid back over 6 years at most, compared to the 8 years that you can get on certain car finance deals.

And if you buy a car with a personal loan, you need to have the discipline to take care of insurance cover and regular maintenance yourself. If anything should happen to the vehicle that leaves it unusable, you’ll still be responsible for repaying the personal loan. So don’t yield to the temptation to 'save money' by not taking out insurance or having the car maintained regularly.

The pros and cons of vehicle finance

When you apply for vehicle finance, you’re getting a loan that’s fit for purpose. The repayment terms, the conditions of the loan and the interest rate have all been designed to make it easier for you to own a car.

This convenience does come with certain conditions, though. For instance, you need to have a valid driving licence to qualify for a car loan and the car must be fully insured for as long as you’re paying off the loan. Depending on your credit history and disposable income, you may be required to pay a deposit on the car to be approved for vehicle finance. Another way vehicle finance differs from a personal loan is that the bank retains ownership of the vehicle until you have paid off the car loan in full.

Another car loan requirement relates to buying a used car. To qualify for vehicle finance, it can’t be more than 10 years old, the price must be at least R50,000 and it cannot be a recovered stolen vehicle.

These conditions may seem restrictive, but they exist because this is a fit-for-purpose loan. The benefits include a lower interest rate, lower monthly repayments if you choose a balloon-payment option and a repayment period of up to 96 months.

When you’re weighing up your options, it’s best to look at the numbers and make an informed decision based on your specific circumstances and needs. You might prefer the flexibility of a personal loan or be considering one because the car you want doesn’t qualify for vehicle finance.

But if your dream car meets the requirements, then the tailor-made conditions of a car loan could tip your decision toward that solution.

Whichever way you decide to finance a vehicle purchase, a Nedbank Personal Loan or MFC vehicle finance can help.

Did you know that if you take out a personal loan or MFC vehicle finance and open a Nedbank Savvy Plus or Savvy Bundle Account, you can get R200 a month cash back for the duration of your loan? For an affordable loan tailored to your circumstances and value-added extras like cash back, choose the bank that’s best for your money.