Buying a Car with Cash vs Financing: Which is Your Best Option? Here’s Your Guide
There are few things quite as exciting as buying a new car, even if it is a new car that is just new to you. With interest rates at historic lows and car dealers spending thousands of pounds on advertising just to get you on the lot, many people are considering trading in their current vehicle for a newer model that gets better gas mileage and has some of those fun and fantastic new features. But if you are considering buying a car with cash versus financing, which is the best option? Here’s your guide.
- Repair costs and expenses versus monthly payments
One of the most common reasons for getting a new car is that the cost to keep your old car running is more than you could be spending each month on a newer model. It is also something you need to consider when looking for your next vehicle.
You do not want to get stuck with costly repair bills at the same time. There are consumer comparison sites that provide helpful information on vehicles with the best dependability and lowest maintenance costs. You also have to think about fuel costs and preventative maintenance when you are calculating your monthly motoring expenses.
If you’re thinking about buying within Minnesota, have in mind that Minnesota is a “lemon law” state. This means that if you buy a used car and it turns out to be a lemon, you may be entitled to a refund or replacement vehicle. A smart move would be inspecting the vehicle by a qualified mechanic before making a purchase.
- Auto loans and contract hire: the main differences
Instalment auto loans help individuals build good credit and build a relationship with the lending institution. But so does contract hire or leasing a vehicle. In addition to establishing a history of paying a lease on time, having an existing relationship with a leasing or contract hire dealer makes it easier for you to obtain a mortgage or loan to start a business. If you have always paid cash for your cars, you do not have a credit history or lending relationship established when you need to apply for a substantial loan.
- Consider depreciation
The main way people get into trouble with auto loans is when they take on large monthly payments for a new car that loses between 35% and 50% of its value within the first five years. If you finance an automobile with a purchase price of £20,000 for five years, you could end up paying back more than £24,000. That same automobile may only be worth about £10,000 at the end of the five years.
This is why many people choose to pay cash or lease their vehicles. When they are ready to renew their car, it is a much simpler process to take the car to a dealer and sell it to get cash in hand to use as a down payment or part of the purchase price on their next vehicle.
With a lease, they can return the car and choose the latest model on a new lease. New car sales representatives are experts at working the numbers to make lease deals appealing.
- Staying in control
The worst possible situation is to owe more money on a car than it is worth, face mounting repair bills, and be stuck trying to trade it in for another vehicle with even higher monthly payments. By doing some research before you start looking at cars and thinking about how long you plan to keep the car before getting another, you can stay in control of the transaction and your overall finances. All that being said, car leasing or contract hire deals can be a good alternative to traditional auto loans or paying cash for your next car.