The Amateur Financier

[Hello and Welcome once again to a guest post here on The Amateur Financier.  Today, we're going to be discussing the costs of driving, and of getting a new car.  The guest poster will be discussing car financing deals, which tend to be a bit controversial in personal finance circles.  I won't get into the whole debate now (that's at least worth a post or two on its own), but I do believe that used properly, such loans can be beneficial, and perhaps even money saving, tools as you try to provide yourself with transportation.  So, read, learn, and enjoy.]

So, the much loved family run-around automobile has made its last shopping trip and finally become just one more expensive repair bill?  Replacing a car is a costly game these days and add to that the running costs, tax, insurance and the spiraling fuel costs and many people are re-discovering the art of walking. Cars are probably the second biggest expense a lot of us face, after chaining ourselves to a mortgage.  Like our homes, they are often essential purchases and pose a real dilemma for many people who are concerned about taking on further credit arrangements in the current uncertain climate.  So should you invest your savings in an old car, hoping it will last a year or so, or bite the bullet and take out a loan?  The car finance market is one of the few remaining buoyant markets going and the vast majority of us use car finance to purchase their next car – new or old.

New for old?

The advantages to buying newer cars, if not brand new, can often outweigh the risks of taking on further credit.  The newer the car, the less likely it is to die a sudden and unexpected death.  Modern cars are becoming more and more fuel efficient all the time, which can help to keep running costs low.  By taking out a car finance deal that you can afford you can actually make some savings.  Strange but true!

[Roger's Note: If you do opt for a new (or at least, newer) car, make sure to run the numbers carefully to make sure that the savings on gas/maintenance will be worth the added cost.  It can be a better deal, even taking the cost of financing into account, but it is far from certain.]

The finance options

Most dealerships will be happy to offer a finance package and many of us choose this route.  Finance packages may include a couple of rather attractive lures, tanks full of fuel or road tax offers are common.  These can certainly be attractive, but don’t let the chance of a free lunch – for your car at least – blind you.  Dealership loans can have other hidden extras usually somewhere in the interest rates or terms and conditions.  However, over 50% of car purchases are made in this way, so it’s certainly one of the most popular routes.

Personal loans, additional mortgage lending or credit card purchases are the other common ways to fund that next car.  With fears of negative equity sending jitters through the mortgage market, mortgage advances are one to be wary of.  Likewise, additional credit card spending is not on many peoples ‘to do’ list these days – if it can be avoided.  Personal loans can be a good method of car finance and as an alternative to dealer finance they should be given some serious thought.  Before agreeing to the dealership offers, do some shopping around on the loan market.  In addition to traditional banking loans, car finance loans direct from brokers are available widely on the internet, which allow you to choose the car and the dealership and may offer better rates.

Green deals

If you are feeling green there is the option to use state incentive schemes to electrify your driving.  On a Federal level a tax credit scheme is in operation for new and converted Plug In Electric Vehicles (PEVs).  Other incentives are available in many states – with more set to create schemes.  These incentives range from a 50% purchase cost deal in Oklahoma to $750 in Utah.  The average value of state incentives is in the region of $4000 – $5000.  Most states operate schemes as Income Tax Credit schemes, though California and Hawaii offer a range of purchase rebates depending on the type of vehicle.  Battery Electric Vehicles, Plug In Electric Vehicles and Plug In Hybrid Vehicles all attract different rates of tax credit/purchase rebate – dependent on the state governments schemes.  Combined with the Federal tax credits these schemes can put Electric vehicles well into the affordable range with a good deal on finance.  Potentially good for the bank balance and the environment the electric vehicle could be one way to save money in the long term – but how effective the schemes are has yet to be confirmed and the take up of electric vehicles in the US is still slow.

Author Bio:  Car finance deals can make sense for many households, saving money in the long term on fuel and costly repairs.