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Finance Or Cash For Your Next Car Purchase

Finance Or Cash For Your Next Car Purchase

Posted On 10 May, 2015

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Buying a car is, for many people, the second biggest expenditure following house purchase. For these reasons, it’s very important to think carefully about finance, the long term costs and implications, and what you can truly afford.

In today’s society, borrowing is becoming more and more common. Virtually everyone borrows to buy a house, a car, even engagement rings, but that doesn’t mean borrowing is always ok, or sensible either.

Most crucially, work out what you can afford. If you’re going for finance, establish the true cost of the borrowing. What will you actually pay every month? What if you miss a payment? What happens if you take longer than you think to pay the debt off? And what if your income changes and affects your ability to pay?

Think, and think again

The topic is so important the RAC has devoted a web page to discuss the risks. For cash buyers, it says: ‘The vehicle will become yours immediately and you are not tied to long-term debt. As a result, you are not paying interest charges, which ultimately could cost you more to acquire the car.’

But, you could take a bank loan, put your car purchase on a credit card, or a number of other ways of borrowing that aren’t a specific finance deal with a car dealership or manufacturer. Hire purchase, peer to peer loans and personal loans are other types of finance, and each has specific and subtle nuances. More advice on these is available here.

There is one element to the whole argument that is simple. In the vast majority of cases, buying outright with cash is going to be the cheapest way to buy a car. So if you can afford it, you shouldn’t think a lot further. But most of us don’t have that ability.

So the situation is complicated. What if you need a car for a new job, but can’t buy outright? The car will make you money in the short term and if you can’t take the job without it, then finance needn’t actually damage your cash-flow at all; it could actually benefit you.

Individual circumstances are absolutely crucial to financing decisions. Don’t rush, or bury your head in the sand if you know you can’t really afford that car. Be honest with yourself and steer clear of stress and trouble in the future.

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