If you’re looking at buying a new vehicle, chances are you are tossing up between two options: Financing or paying outright with cash. While a loan might seem daunting at first, there are many reasons why you may want to consider it.
Below, we are going to talk about some of the pros and cons of financing a car so that you can determine if it’s the right decision for you.
Want to learn more? Then let’s get started.
While it might not seem like it, financing your vehicle can actually help improve your budgeting habits. Since you’ll be paying weekly (or monthly), all you need to do is include it in your expenses and subtract it from your total income. You’ll be able to invest in other areas of your life and manage a more practical cash flow.
Related: Is a Car An Asset?
Money for Emergencies
Buying a car outright can be a significant expense and take quite a lot of money out of your savings. By financing, you can keep that money in your emergency fund for unexpected accidents, so that you stay out of serious debt.
However, with all that being said, you do need to keep in mind what will happen if your vehicle is involved in a crash. Check out what happens if a financed car is totaled for more information.
Not everyone has money to buy a brand new vehicle outright, so most settle on paying for a second-hand or used car. While there is nothing wrong with this, they are generally older models, don’t contain the best safety features, and will break down sooner. Financing allows you to get the vehicle that you’ve always wanted, even if it does cost a little more in the long run.
Interest rates are one of the downfalls of financing. Without doing the right research, you can be paying much more than you would like to. However, there are ways to keep them to a minimum. Since there are so many options available, the size of the deposit you would like to put down and how long you want the loan to last will impact how much you have to pay back.
Credit scores also play a part here. If you don’t have a very good history, you may struggle to find a lender with a low interest rate due to your high risk. If you do want to finance, make sure you get a credit check and look at ways to improve it. Trust us when we say it will be worth it in the end.
When it comes down to deciding whether or not financing a vehicle is the right move for you. It ultimately depends on your current situation. If you have the cash to buy something outright (and it won’t affect you financially), that option is best. If you don’t but do have a stable full-time job, you can consider a loan.