You’ve decided to treat yourself to a new car, congratulations!
After choosing your dream machine, the name of the game turns to negotiating a deal that suits you both now and long term.
There are two main options when paying for a new car: you can pay the full amount upfront, based on existing savings, or you can choose a finance package that includes a loan and fixed payments. periodically. terms.
Both alternatives have their right time and place, but which is right for you?
Let’s unpack each case.
Cash case
Paying cash for a new car means selling for the full value of the vehicle at the time of purchase, giving the buyer the full value of the car without any further financial commitment. .
It’s an option for buyers who have the money in their bank accounts to make the purchase, whether that money is intentionally set aside for a new car or otherwise.
There is an ancient saying Cash is kingBut still, right?
Assured
While spending tens of thousands of dollars on a new car can be a tall order, once the purchase is complete there’s nothing to worry about.
The finance package requires consistent maintenance in the form of regular payments and when it comes time to sell the car, it is the seller’s responsibility to disclose the car’s financial status and pay off the balance of the loan if required .
That can create stress for the borrower, which can be prevented by paying cash in the first place.
Instead of focusing mental energy on debt repayment and interest, cash buyers can enjoy driving in their own car from day one.
For people with a comfortable, stable financial situation, it makes a lot of sense.
However, many people choose to finance their new car because they simply do not have the financial security to make a cash down payment.
Therefore, the ongoing commitment to repay debt and interest would burden them disproportionately on those best placed to repay their debt.
As mentioned, unforeseen situations can strike anyone at any time, so borrowing money always has the potential to create financial pressure.
Interest-free ownership
Like most types of loans, auto lenders charge a fee for the privilege of borrowing money.
After all, there is no free lunch.
So the borrower has to pay regular interest in addition to the loan payments, which will increase the final price of the car. In other words, money that should have stayed in your pocket ended up in the hands of the lender.
In other words, financing a car means you have to pay more than a cash buyer for the same car, making your financial situation worse.
Flexible
Paying cash puts you in the driver’s seat, both literally and figuratively.
Without contracts and ongoing financial obligations, you have the right to sell the car whenever you want and the freedom to choose a replacement car.
Don’t ask permission, and certainly don’t ask for forgiveness.
Financial case
Financing a new car involves borrowing money with a lender and agreeing to repay it in installments, plus interest, over a set period of time.
The loan can be obtained from a car dealership’s finance department or from outside lenders.
According to industry insiders, this method of buying a new car is becoming increasingly popular.
“Based on last month’s results, approximately 50% to 60% of our deliveries were financed,” a Western Ford spokesperson said. Car expert.
“There are many different ways someone can structure a financial loan. You can choose to put a deposit down on the car or if it is being purchased by a business, a better option may be to opt for a balloon payment at the end of the loan to reduce ongoing payments.
“Whether payments are weekly, bi-weekly or on another schedule depends on what works for the customer.”
So what are the benefits?
Opportunity to invest elsewhere
From an investment perspective, paying cash for a new car is effectively putting money into a depreciating asset.
While most people don’t think of their car as an investment, many finance enthusiasts will argue that the money needed to buy a car would be better invested elsewhere.
Taking on a finance plan opens up the opportunity for a return on the liquidity you retain, which can offset or even exceed the interest paid on your car loan over time.
There are no guarantees when it comes to any investment, and the economic environment plays a huge role in how viable this strategy is at any given time, but it’s certainly one to take. consider.
Drive away today
Saving money to buy a new car often takes years, and during that time, you’ll be stuck with a car that you may have fallen out of love with, lost interest in, or lost control of.
Perhaps your family is growing and you need to upsize, or your current car is so old that it no longer offers safety and technology.
Most don’t want to wait years to alleviate those problems and that’s where finances come in.
With a finance package, you don’t have to make a large down payment so you can get behind the wheel sooner and enjoy the benefits of having a shiny new car in your driveway.
“For us, it’s more important to create ease for our customers,” said a Western Ford spokesperson.
“We offer a product package to our customers to ensure their satisfaction and to suit their needs. Our finances are all done in-house.
“By providing options, we give customers peace of mind that they can walk in, walk out and know exactly where they are.”
Increase your credit rating
Servicing your new auto loan will add a positive line of credit to your report, which can boost your credit rating.
This opens up access to more loans in the future, which is good news for new car buyers looking to apply for more loans in the future.
That applies to any type of loan, not just car loans, so successfully repaying the loan amount the first time also improves your chances of securing a mortgage when till the time.
Disclaimer: The information on this website is for general purposes only and is not a substitute for professional financial advice. CarExpert recommends that you seek independent legal, financial, tax or other advice specific to your personal circumstances.
