In this modern day and age, a car seems to be more of a necessity than a luxury. Having to go to work everyday is tiring enough, and it even becomes more stressful if you have to commute on your way. In addition, having your own car does not just make things convenient, but it is also beneficial in work or business. You can drive clients, or haul some stuff.
Buying car is probably one’s biggest purchase in life next to a home. It entails wise and careful decision-making. If you can afford it, buying it in cash may actually be worthwhile, particularly if you do not have a very good credit rating.
However, if you are like the majority of the population who cannot afford to buy a car in lump sum payment or you have enough money for your planned purchase but you want to keep your savings intact, it may just be impossible for you to buy a car in cash. Whatever the case is, two alternatives to buying a vehicle in cash, and perhaps the more common choices, are car loans and car finance. Though sometimes mistakenly regarded as the same (because both basically involve borrowing money), there are differences between the two.
To put it simply, a car loan basically means borrowing money from a lender to own the car outright. You can get car loans from different sources, such as banks, credit unions, a relative or friend, or even tie it to your mortgage, also known as mortgage top ups.
On the other hand, car financing works by dealing with a car finance company to buy the car for you, and you make direct repayments to the company. Here, you do not take immediate possession of the car. Rather, you are only leasing it. You can continue driving it as your own, until the end of the lease comes, wherein you have to decide if you want to make a balloon payment to finally own it, or continue leasing it again. You can also change models if you want.
Taking a look at the costs of each, car loans may be a more expensive choice initially. It is because the downpayment in car loans is usually higher as well as the monthly payments. Car finance has cheaper monthly rates and payments are minimal. However, when you look at it, you do not stop paying for the car should you decide to lease it again.
In different scenarios, one option may be better than the other. If you just need a vehicle for transportation and you seem contented with one car for years, then the car loan may just be for you. On the other hand, if part of your job involves driving with clients, then having to change cars from time to time with car financing might just impress them.
Both can be sound options depending on particular needs and situation. Whatever choice you make, just make sure to shop around and never jump on the first deal offered to you. Bear in mind that companies rarely offer the deal that is geared to your best interest instead of theirs.