Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Why a Car Loan Could Be a Smart Investment in 2026
Moneymagpie Team
20th Feb 2026
Most of us grow up hearing the same thing: “Avoid debt.” And that’s solid advice in many situations.
Having said that, it is worth keeping in the back of your mind that not all debt is created equal. Additionally, you should be aware that money works a little differently now than it did a decade or two ago.
With the general cost of living being higher than it’s ever been, house prices rising through the roof, and cars (especially new ones) getting more expensive all the time, many Australians are making a conscious effort to keep their savings intact.
Against this backdrop, and while it might go against traditional advice your elders might have given you, taking out a car loan to purchase a vehicle can sometimes be a smart move. But, only if you handle it properly.
Here is why a car loan could be a savvy financial investment in 2026.
- How can buying a car on finance be a smart move?
- What different car loan options are available?
- Does paying cash or taking out a car loan make better financial sense?
- How could interest rates impact my decision?
- When financing a car might not be the right choice
How can buying a car on finance be a smart move?
You might well be wondering how taking on a debt can be a smart financial move. And that is a perfectly valid question.
Well, for many people, the biggest advantage of financing is that you do not withdraw a large chunk of your savings in one go. According to various sources, the average price of a vehicle ranges from $20,000 to $50,000+, depending on whether you buy a new or used model.
If you were to pay this upfront, you risk reducing the amount of money you have as a contingency for emergencies. Or, for that matter, to cover eventualities such as long-term sickness, injury, or unemployment.
In short, buying a car on finance can give you much-needed breathing room, which can be extremely useful if you are ever hit with the unexpected.
What different car loan options are available?
If you are considering taking out a loan to buy a vehicle, there are several car loan options available to you in Australia.
For instance, a secured car loan uses the vehicle as security. It is a popular choice for many buyers as it often comes with a lower interest rate. By contrast, an unsecured personal loan doesn’t require the car as collateral. However, the trade-off is that their interest rates tend to be a little higher.
Another option you can look at is dealer finance. This is typically arranged at the dealership where you want to purchase the vehicle. Or you can go directly through a bank or specialist lender.
If your credit history is less than perfect. Don’t worry, some options still exist. For instance, companies like Azora can help you find out how to get a car loan with bad credit. This can be a godsend for many Australians.
Does paying cash or taking out a car loan make better financial sense?
This is a very pertinent question. On the face of it, you might automatically think that paying for a car in cash is the obvious choice. Largely because you’ll have no debt. You’ll also have no interest to pay and, best of all, the car will be fully yours from day one.
But here’s something to think about. The opportunity cost of paying cash. In other words, what else could your money be doing?
For example, if you spend $25,000 on a brand new Hyundai i30 all at once, that money is gone forever. It can’t earn interest for you. It can’t offer you protection by sitting in your emergency fund. And it most certainly can’t be invested.
Moreover, when you use finance to buy a vehicle, you spread the cost of it over several years. Granted, you might end up paying more for it in the long run, thanks to interest. But having this money available to you can help to manage your cash flow. Especially if you’re juggling rent, bills, and saving for bigger goals.
Additionally, there’s the credit score factor to consider. If you make repayments on time every week, you can help to improve your credit score. This could be useful later down the line if you ever want to take out a home loan or borrow a much larger sum of money.
How could interest rates impact my decision?
Current and future interest rates should be major considerations when deciding whether to take out a car loan. That is because they can be very influential in affecting how much extra you will end up paying on top of the car’s price.
If interest rates are higher, for instance, then your borrowing costs will be higher. By the same token, if they’re lower, then loan repayments are usually more affordable.
When assessing your loan options, you may see some described as fixed or variable interest rates. As their names suggest, the main difference between the two is that a fixed rate stays the same for the entire term of the loan. A variable rate can change on a regular basis. Often in response to what the RBA has set as the cash rate.
When financing a car might not be the right choice
While it does provide you with some distinct benefits, it would be remiss to say that financing a car isn’t always the best financial decision you can make.
For instance, if your budget is already tight, adding extra monthly repayments can create unnecessary pressure. It is also worth noting that a high interest rate can make the total cost of the vehicle much more expensive than you expected. In some cases, this can result in you paying more for a car than it is actually worth.
For this reason, buying a much cheaper vehicle and investing the rest of your money could be a much more sensible option.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.
Subscribe
Login
0 Comments
