When you go through the process of buying a new car, one of the first steps is trying to decide how you’re going to finance it. You might be thinking about taking out a loan or using cash that you have in savings. There are pros and cons to each option, so take them into consideration when choosing which route you want to take.
Pro: You can buy a car (without needing to wait to save up any of the purchase price)
If you can’t afford to purchase a car outright, a loan may be the best way to get one. You can finance your new car purchase by taking out a loan, and making a down payment on the car (if you want to). This allows you to buy a vehicle immediately rather than needing to wait for years before saving up enough money to make a large purchase
Con: You’ll have to make monthly payments
If you take out a loan, you’ll have to make monthly payments until it’s paid off. This can be a downside if you’re tight on cash flow or if you want to be debt-free as quickly as possible.
Pro: You can get a bigger loan
If you take out a loan, you’ll have access to a larger amount of money than you would if you were only using cash. This can be beneficial if you need to make some upgrades to your car or purchase pricey aftermarket accessories.
Con: You could end up owing more than what the car is worth
If you finance your new car and then have to sell it or trade it in before the loan is paid off, you could end up owing more money than the car is actually worth. This is called being “upside down” on your loan, and it can put you in a difficult financial situation.
Pro: You can get a low interest rate
If you have good credit, you may be able to qualify for a lower interest rate on a loan than you would if you were using cash. This means that you’ll end up paying less in interest over the life of the loan, which could save you money.
Con: You’ll need to pay interest
Whether you get a low interest rate on your loan or not, you’re still going to pay interest. This means that you’ll end up spending more money to finance your car than if you were using cash.
Pro: You can build your credit
If you make your payments on time, taking out a car loan can help to boost your credit score. This could open up more financing options in the future, such as getting a mortgage or taking out another personal loan.
Con: You could end up making payments for a long time
Depending on the size of your loan and the interest rate, you could be making payments for several years. This can be a downside if you want to get the loan paid off as quickly as possible.
In the end, there are a lot of factors that need to be considered when choosing how to finance a new car purchase. Think about your budget, your needs, and your goals as you decide which option is right for you. Make sure you take the time to assess all of your car loan options (including searching for city-specific deals like ‘car finance Melbourne’).
