Top Reasons Why You Should Use Car Finance

The following is a guest post on behalf of Money Supermarket.

Financing your next vehicle may be a no-brainer, but many people are in the market to lease or even pay for their cars in cash. While these may seem like the best ways to obtain a brand new car without being subjected to a stringent loan agreement, the advantages of financing a car to own it outweigh the rest.

Why Financing is Preferable

Showing up to the dealer, cash in hand is great if you can afford it, but the fact is that many people scrimp and save years to pay for a car in cash. If saving has been this difficult for you, it’s not a good idea to pay for the car in full.

Taking on an auto loan allows you to spread out some of that cost, so you aren’t parting with all of your money at once. You can use a hefty chunk of your savings for the down payment, but wiping out your savings is ill advised. This is because it’s a much wiser decision to leave an emergency fund in your savings account for those unexpected costs that may arise.

Financing will also allow you to get a vehicle that you otherwise cannot afford upfront. This way, you have your choice of safer cars more suited to your family’s lifestyle, rather than settling for something that’s already twenty years old and been through quite a few owners.

This doesn’t mean that you should take on a car loan bigger than you can afford. Compare car loan rates on websites like to see if you can afford the monthly payments of a more expensive car. If your budget is stretching it, reconsider a less costly model.

Financing an automobile will even help boost your credit score. Even if you have had financial trouble in the past, many dealers extend loans to bad credit customers. This means that you can begin to rebuild your credit by making those monthly payments on time, which is something you cannot get from paying for a car in full.

Although leasing does have its advantages, buying a car that has a decent resale value could end up being an investment. You won’t get your money back years down the road when you go to resell, but you could end up with a nice trade-in value to get that next new car.

Regardless of the auto loan you choose, be sure to research the lender information carefully. Know the terms of the loan, additional fees, monthly payments and penalties associated with making late payments or even double payments. Some lenders will not allow you to make early payments without a penalty, so don’t be afraid to ask questions. Applying for any loan is a big deal. Be prepared for anything.

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16 Responses

  1. We are big fans in saving for a car first and paying cash. We just hate having to pay interest. Right now we are already saving for our next car even though we have two that are working perfectly fine. You should always be prepared.

  2. I’d only take advantage of a financing offer for a car if the APR was 0%. That way I could use my cash/monthly cash flow for other investments, etc. that have an actual return/make me more $$

  3. I’m totally with Miss T on this one. The thought of financing a car never even enters my mind any more. I have a yet to published post that you may find interesting that relates to this. I’ll shoot you an email when it comes out.

  4. Juan says:

    With a zero percent apr it car financing really can be a great idea, though it would be best if the car is not new [to help combat depreciation].

  5. Carey says:

    Finance companies rarely go out of business, they are usually bought out by another company willing to accept their debt. You might have to do a title search and internet research to determine who actually carries the lien on your car.

  6. Is there really that big of a difference in lenders? When I shopped for a car loan on a used car most of the big banks had similar rates and terms, most of the credit unions had similar rates as well. Your post made me question if I should have called more banks and credit unions to truly see a difference.

    • Buck Inspire says:

      I can’t imagine rates varying too much, but it’s always best to do your due diligence. You should also determine what is more important to you. Lower rate or the safety of a big bank?

  7. LLE says:

    As long as you know exactly what you’re going in for before you sign the leasing agreement then it should be fine, but be careful as you can end up losing the lot if you start having problems with the payments.

  8. Car finance option must be used I think as it saves our account from being blank due to such car purchase and in addition to that it comes sometime with additional advantage like discounts etc.

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