Should You Pay Cash or Obtain a Car Loan?
Posted 10/01/09
Given the current state of the car manufacturing sector, many car companies are offering significant discounts on new car models and low financing rates. They believe if they can convince enough buyers to buy new cars with them, it will help kick start the auto sector. With the threat that some car manufacturers will go out of business, many consumers are reluctant to purchase with those companies. Other consumers have decided that there is no time like the present to take advantage of the significant deals and discounts. For consumers who can afford a new car, the question will then be whether to purchase the car with cash or a car loan. You should weigh the costs and benefits of both options and decide what makes the most sense for your budget.A large number of people who buy a new car do so via a car loan, since they often do not have cash available in such a large amount. Before you take on a car loan, however, you should be comfortable with the monthly payment you will take on. There are many choices for a car loan and you will want to spend the time to find a good rate and terms. A dealer will frequently try to give you a better financing rate with them, if they know what rates and terms you have found from other lenders. When you do your budget calculations, do not forget to include costs for registration, title, inspections and licensing. The advantage of a car loan is that you will be making small payments, instead of shelling out a large sum of cash up front. You get instant gratification with a car loan. A car loan, however, does have some downsides. You do not own the title until you pay off the loan. You will actually pay more for the car than you would if you were paying cash, because you will be paying interest and other fees. If your financial situation changes and you can no longer afford the car loan payments, you will have to sell the car to pay off the loan.
Paying cash is the simplest way to purchase a new car. Decide what you want, then save or set aside the funds. You go to the car lot, give them the money and drive away with a car that you own outright. There are no strings attached. No need to research rates or fees or terms. You pay only for the car and do not have to worry about monthly payments that include extra finance charges and fees. The title is yours, not the banks. And you do not have to be concerned with ever owing more on the car loan than the car is worth. The only disadvantage to this method is the potential that investing the large sum of cash elsewhere might earn more money over the long term than you would have put into car loan payments.
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