Is Getting Car Finance A Good Idea?
Are you scratching your head and weighing the pros and cons of car finance? 🤔 Maybe you’ve heard worrying things about financing a car and why car finance is a bad idea. But like everything in life, you need to find out for yourself before making a judgement. The best thing you can do before going any further or signing a contract is to learn as much as you can about car financing. Knowledge is power! That’s why in this post, we’ll focus on their advantages and disadvantages so you get a balanced view.
Is Car Finance a Good Idea?
What are the advantages of financing a car? There are a number of good reasons to get car finance so you can buy your car. First of all, you don’t have to spend all of your savings, leaving you with no emergency fund, just to make a big purchase like buying a car.
You can Customise the Car
When you finance a car, you’re going to own it eventually. You just have to make sure that you’re paying the lender on time every month. And once you’ve settled all the payments, you’re the owner of the vehicle.
You don’t have to wait for the final payment to be completed for you to customise your car. Depending on the type of car financing you got, you can sometimes even make changes to the car so you’ll be more comfortable with it as you’re driving. If you're only leasing a vehicle, or you buy with a personal contract plan, you won’t be able to make modifications because you don't own the car and you have to return it in the same condition that you got it.
You can Sell the Vehicle Anytime
Entering a car finance agreement means that you intend to own the car. After you repay the lender, the vehicle is yours and you can do what you want with it. Do you want to trade it in or sell it privately? You can definitely do so after your finance agreement has been paid. Find out about early repayment with your lender.
Mileage Limits on the Car
With car leasing and PCPs, there are limitations on what you can do with the car. One of those limitations is the annual mileage you do. Hire Purchase car finance loans or personal bank loans allow you to drive the car without having to worry about mileage limits.
You can Save More Money
A car finance agreement means you can buy a car and then pay the lender for a set number of years. You make monthly repayments where the amount is fixed. There are no surprises about how much you have to pay. You can budget your finances easily since it’s a fixed amount for every month for three to five years.
You can save more money with car finance by choosing a shorter loan term or by making a bigger deposit. Since financing a car means you’re going to pay the principal amount, as well as interest, it would be advantageous to you if you only have to repay the lender for three years instead of five. The shorter the loan term, the less you spend paying for the interest. Whilst the monthly repayment amount is higher compared to a five-year loan term, you’ll save more overall.
Is financing a car a bad idea?
Now, let’s look into what are the disadvantages of financing a car. As with most things in life, there are pros and cons to car finance. Before you get financing to buy a car, it’s wise to know what the disadvantages are and what you’re going to encounter once you enter an agreement with the lender. Here are some of the most common car finance disadvantages.
Repair Costs After the Warranty Ends
Unlike car leasing, you’ll have to spend money on car repairs after the warranty expires. (Warranty length can vary between manufacturers and dealers.) The manufacturer’s warranty is commonly 36,000 miles and 50,000 miles for a powertrain warranty.
It’s not enough that you budget your finances for the monthly repayments. You also have to factor in the repair costs, amongst other things, along the way. It’s better to have a separate budget for this so that you’ll always be ready in case something goes wrong with your car. You won’t have to go through so much inconvenience because of car issues.
Leasing vs Finance - Monthly Payments
When you compare a car lease with car finance, you’ll need to pay a higher amount for the monthly repayments with a lease. For car finance options, you may also decide to contribute a deposit, around 10% of the car's value, along with your monthly repayments, but these will be less. But keep in mind that with finance you’re going to eventually own the car. And lease payments although higher might include other car-related expenses such as insurance or road tax. If you don’t want to own the car in the end, and want to change frequently to a newer model. then car leasing is the better option for you.
Costs Due to Depreciation
Another car finance disadvantage is the steep depreciation, particularly with new vehicles. This affects all new cars, once they leave the dealership they will be worth less than paid. It may depend on your car’s brand but the depreciation rate may actually decrease significantly in the following years. And of course, some high-end brands may increase in value and even be an investment. However, for some auto manufacturers that have poor resale values, the depreciation rate may continue to affect the car’s equity even after the first few years.
Hopefully, being aware of these pros and cons has helped you in deciding your course when looking for car finance. We’ve covered some of the reasons why financing a car could be bad. We’ve also seen the major points on why financing a car is a good idea. Only you can decide whether to go for car financing, because only you know your financial situation and whether you’ll be able to take on the responsibilities of owning a car through car finance. Never overstretch yourself with the amount you borrow. Think about what you can comfortably afford, not forgetting the additional costs of car ownership, like insurance, road, tax, repairs and fuel.
If you’re interested to know more about the different car finance deals, on offer, check out Carmoola! Carmoola is revolutionising car financing, making it simpler and more convenient for car buyers to drive their dream cars home in no time.
For other articles on car finance, be sure to check our blog for the latest tips! If you have questions for us, do reach out! We’d love to help you. 👍🚘