Knowing how to buy a car is an important life skill. For many people, cars are the second largest purchase they will ever make after their home. That’s why it’s so important to understand all of your options when you get ready to buy a car. Depending on your situation and personal preferences, there are several different ways to buy a car that will work for you. There are many factors to consider when making a purchase. Which payment option is best? Do you take out a car loan or save money for it? These are all important questions when deciding how to buy your next car.
What is the best way to buy a car?
There are several different ways to buy a car, each with its advantages and disadvantages. The best way to buy a car is whatever way works best for you and your situation. If you are taking a loan to buy a car, you will need to be ready to make monthly payments for the life of that loan. It’s important to make sure that you can comfortably afford the monthly payment because if you can’t pay it, you will lose the car and get behind on your payments, which can affect your credit score.
If you are planning on paying cash for your car, you will need to have saved up enough money for the entire purchase.
Bearing in mind that cars cost a considerable amount of money, is there an ideal financing model?
This article examines two common car purchasing options. Which is better, saving up and buying it or taking up a loan?
Buying with the cash you already have
If you plan to pay cash for a vehicle, leave enough money in your regular savings account. Before engaging in any major financial transactions, financial experts advise keeping at least three months’ worth of emergency savings. If you experience a loss of income, a business deal that goes bad, an urgent medical bill, or a car that requires expensive repairs that your insurance doesn’t cover, for example, having a financial cushion will prove helpful.
Having the money to buy a car straight up can be advantageous because one does not have to worry about monthly payments in other financing methods. You might benefit psychologically from paying for your vehicle by saving up and buying it with cash if sending in that monthly car payment makes you shiver. This method also prevents you from losing sleep over whether or not your new car will be repossessed if your cheque doesn’t come through. You won’t be charged interest if you select this method, which enables you to save time and money.
Shortcomings of Using Savings
Before splashing all of your money on a new car, you should think about a few drawbacks:
Paying cash for a new car will feel nice because there are no payments to make, but it could also drain your savings and cause financial problems down the road.
For example, if the car develops significant mechanical issues a few months after the purchase, do you have more cash on hand to fix it or would that be the end of the road for you? This is an important question to ask before spending your entire savings on one item.
This could easily apply to other big purchases such as land, a home or even big household items that cost significant amounts. Is it wise to lock all or a significantly high portion of the cash you have in one illiquid place?
Another thing to consider when opting for the savings and cash upfront option is the fact that you are going to lose money due to depreciation.
New cars quickly lose their value. It is estimated that after five years, a brand-new car may only be worth 60% of its original value. Therefore, by paying for a new one in cash, you could be paying for a lot of depreciation out of pocket.
The cash upfront approach could also mean that you lose any investment opportunity for the cash, plus this also generally means you are decreasing your savings for unforeseen events down the line
Taking out a loan to buy a car
While getting a loan could mean driving off the lot in your dream car, it also means that you will be making payments for some time. This is why it is important to examine the advantages and disadvantages of this financing option.
For one, car loans generally come with fairly long tenures. Each payment made on time will improve your payment history, and consequently boost your creditworthiness in the long term.
Secondly, if you choose to pay in cash, depleting your savings is never a good idea, as it leaves you exposed when an emergency strikes. This makes small monthly payments the better options as it offers a cushion against uncertainty.
It also frees up cash that can then be diverted into worthwhile investments that could grow it even further, which can then be used to ease the burden of monthly payments.
Another major benefit of taking up a car loan is the availability of options that could fit your specific financial situation. There is no shortage of places to get a car loan.
On the other hand, taking up a car loan may not be the best option for you if:
- Your monthly income is unstable.
- You can comfortably afford to pay cash without making a major dent in your emergency funds and savings.
- If you can’t afford to keep the car – always consider the cost of owning the vehicle, including fuel, insurance, registration renewals, maintenance and repairs. This could also mean that getting a car, in general, could be the wrong financial move for you at the moment
When is the best time to buy a car?
The best time to buy a car is when you have the money saved to do so. It is important to remember that there are many ways to buy a car, and you may be able to save more money if you plan. Many car dealerships offer great deals on cars during the end of the month. It is also a great time to look for used cars at reduced prices.
If you are looking to buy a car, it can be a good idea to start saving a little bit at a time. The more money you have saved, the more options you will have when it comes to buying a car. There is no specific time of the year that is better to buy a car than any other. The best time to buy a car is when you have saved enough money to do so.
Get a Car Loan at Mwananchi Credit LTD
When looking for a car loan, it’s important to consider your situation, financial goals and your credit history. When you’re ready to select an auto loan provider, check out our list of the best car loans.
That’s why it’s important to only work with reputable lenders who will lend money to people like you wanting to buy a car or truck with bad credit. By doing so, you can ensure that you’re getting the best deals possible on loans from a lender who believes in people like you and will work hard to get you the best terms on your loan.
We understand that one of the biggest barriers to getting a car loan is a lack of credit history. At Mwananchi Credit Limited, we work hard to help people gain access to credit as quickly as possible so they can get cars without taking on any debt.
We also provide vehicle insurance for both new and used cars at competitive rates. By offering competitive rates, we hope to make it easier for people to afford auto insurance, which will ultimately benefit everyone involved in the car loan process.
There is no single option that works for everyone when it comes to purchasing a vehicle. Furthermore, someone starting a family has a different set of financial priorities than someone either starting or finishing a family. It’s possible that the person just beginning might not be willing to invest all their money on a vehicle, making a loan and periodic payments more appealing.