Buying a car is rarely an easy endeavor. You need to take a closer look at your lifestyle and figure out what kind of car suits you. And you need to go through the trouble of finding a reputable dealer and getting a vehicle for a reasonable price. But, one of the more challenging aspects that people have to deal with is how to pay for a car. And seeing that there are various financing options, we are going to help you explore and understand them.
What to consider before buying a car
Before you stop leasing a car and opt to buy one, making a few things clear is essential. First of all, know that there is an important difference between being able to buy a car and afford one. The fact that you have the necessary finances to purchase a car doesn’t mean that you can afford to own it. Know that every vehicle is an investment, especially if you want to keep it in pristine condition.
It is crucial that you carefully consider the cost of ownership before you start figuring out how to pay for a car.
Apart from fees regarding licenses, you need to maintain and possibly even upgrade your car, so it’s in good condition, not to mention fuel costs and parking fees. Add to that the issue of transporting your car, and you’ll soon see the significant difference between buying and owning a car. If you can go and get it by yourself, that’s great. But, if not, you will have to factor in the cost of the transfer. While there are companies that can have your vehicle transferred in no time, doing so is rarely cheap.
How to pay for a car
In essence, there are two distinct ways in which you can pay for a car. You can either pay the total amount with your savings. Or, you can borrow money. If you can afford it, the first option is usually better as it saves you from the interest rates connected to borrowing. But, unfortunately, it is not common for people to have that much money lying around. So, let’s explore both of the options to see what pros and cons they bring.
Paying with cash
If your finances can support it, you should pay for your car in cash. Even if you can’t afford the total cost of the car, you should seek to deposit as much as possible from your savings. Unfortunately, few people can afford to pay for a vehicle out of their savings account.
Paying with cash tends to be the best option, no matter what you are paying for.
The critical thing to remember is that your savings account is your safety net. If something unforeseen happens, it will be what protects you from more considerable troubles. The thinner the net is, the less support it can give you. And, in most cases, even an affordable car can wear your financial safety net pretty thin. As we have mentioned, you need to factor in more than the simple buying price of your car. Once you add the maintenance costs, running costs, and the potential cost of importing your vehicle, you will soon see that resorting to your saving account can be risky.
If you have any costly plan set up for the next year or two, we would advise you to refrain from paying in cash and instead opt for a loan. Doing so helps maintain your safety net and ensures a more comfortable financial adaptation to owning a car.
Getting a loan
If getting a loan is the most viable option for you, you need to do some research. Depending on your credit score, there can be different options available, and it will be your job to pick the best one. With a good credit score, you can be eligible for 0% interest special offers. If not, you can research a car payment plan. The important thing to keep in mind here is that, officially, you will not own your car until you’ve paid off your loan. The finance company will be the de facto owner. And if you fail to honor the finance plan you’ve agreed upon, they can legally take your car away.
This is an excellent example of why having a financial safety net is a good idea. By having one, you won’t be forced to give away your car, if you are unable to pay.
Understanding the risks of borrowing money
Borrowing money from a financial company is a complicated subject that people tend to consider superficially. It is good to remember that no company is doing you any favors. They are only weighing out the risks and the benefits of lending you money. Therefore, if you want to be responsible for your finances, you need to do the same. The key here is to outline the gains and the drawback of your loan clearly. If you foresee that your financial status will be stable in the near future, you should consider taking out a loan. But, if you believe that your financial situation is uncertain, know that the finance company won’t be considerate or kind.
As you can see, figuring out how to pay for a car is not as easy as it may seem at first glance. The total cost of owning a car can easily double its buying price. This is why people often overreach their budget. Even something as simple as new tires can be surprisingly expensive. So, the advice we have for you is to put everything in writing and carefully outline the risks and the costs. Luckily, some great apps can help you with your calculations. So, don’t shy away from using them or even from consulting a financial advisor.