How You Can Best Decide to Pay for Your New Vehicle
by Mashum Mollah Automotive 10 October 2020
Everyone can honestly say that paying for something in cash is the best possible way to buy something, and this goes for new vehicles as well. A new car will definitely be expensive, and you need to have some savings in order to pay for it outright, but you can save a lot of money. If you don’t have the cash you need to pay for a vehicle outright, you can get a loan. But the decision you make has to ultimately benefit you, so you need to sit down and think about your options as carefully as possible so you can avoid financial hassles and headaches later on. Here, then, is how you can best decide to pay for your new vehicle.
Paying in cash: what you need to know
The best possible way to purchase your new vehicle is unarguably to pay for it in cash. But this is only a reasonable option if you have enough funds left available for other unexpected expenses, and you are not draining your cash reserves. If you do have enough funds left over after paying in cash, here’s why an outright purchase is best:
- When you pay for your vehicle in cash, you own it right away. So if you ever get into any financial difficulty in the future, you can sell your vehicle. You can’t sell your vehicle if you are in a finance contract or agreement like hire purchase or leasing.
- Even if the interest rates for a new vehicle may be low, it still makes better sense to spend your savings instead of borrowing at higher interest rates. For instance, if you have a thousand pounds in your savings account, it will only give you about £20 interest each year. If you get a thousand-pound loan to purchase a vehicle, you will have to pay off about £90 in interest on the loan each year. In the end, you will end up with £70 less than you would if you just used your savings to purchase the new vehicle.
- If you make use of a credit card, you will have to settle the bill on the card in full in the succeeding month so as not to accrue interest. Additionally, not all car dealers will do credit card transactions.
- When you pay in cash, you can also benefit from more new car deals and discounts that you cannot really get if you acquire a loan or borrow money.
Borrowing: what you need to know
If you simply don’t have enough cash on-hand to pay for a new vehicle, you can borrow the funds you need to purchase your vehicle. But you also need to bear the following in mind:
- You can only get a good vehicle deal if your credit rating or score is good.
- If you choose car financing, the lender or financing company will own the vehicle during the duration of the plan or contract, and if you cannot pay your monthly repayments, you can very well lose the vehicle.
- You also need to have emergency funds ready in case your income drops or you have any unexpected expenses so that you can still keep up with the monthly repayments no matter what happens.