The Pros And Cons Of Buying A Car On Finance
Buying a car on finance is a double edged sword if not taken seriously. It’s important to first understand the implications of one’s decisions, their financial situation and the outlook of their finances in the long term. This way, you can make a decision on car financing such that even if you are adversely affected by issues such as reduction in income, you will not be negatively affected. If you are in the market for a new or used car and intend to pay for it through financing, understanding a few basic details regarding general car financing is crucial. It will allow you to sidestep the common pitfalls people make when getting this kind of credit. It will also reduce the likelihood of finding yourself unable to pay for the car even if you lose your income. Some of the pros and cons of car finance you should be aware of include:
Many firms offer transparent lending options, and will even offer means of easy pre-approval for faster access to financing tailor made for you. However, there are some companies which will seem to offer great deals, but will have terms and conditions that are complex. This is usually intentional and intended to make the most money out of you in mostly unfair means. For instance, they could offer incentives such as no down payment and low monthly payments, but then charge heavy penalties or change their terms when you miss a payment. Some firms go to the extent of not allowing you to deviate from the payment plan at all. For instance, they may charge you for making monthly payments too early or paying off the rest of the loan before it is due. Avoid this by going through the fine print for each deal you want to sign, and understand it well. Feel free to ask questions regarding clauses that seem suspect or which are clearly designed to trap you in debt.
Longer Repayment Terms are More Expensive
For many car financing options, longer repayment terms seem attractive since they translate to lower payments each month. However, when you calculate how much you will end up paying for these loans, it may turn out to be a lot. Some predatory lenders could even end up charging you half the value of the car as interest. You can avoid this by choosing to pay a higher down payment, and then choosing a shorter duration to pay off the rest of the loan. This way, the monthly payments will be lower, and the total interest will be reduced as well.
You Use the Car, but it Technically Doesn’t Belong to You
When you finance a car, you will be allowed to drive it as soon as you meet the initial criteria involving down payments and signing the agreed paperwork. However, until the loan is paid in full, the car technically does not belong to you. Always go through the fine print to understand the implications of this regarding what you can and can’t do with the car. This includes making modifications, maintenance requirements and whether you can sell the car or not.
The key to avoid car financing pitfalls is by working with a trustworthy, transparent firm which will allow you to have a financing plan perfectly suitable for you.