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Buying a car can often be one of the costliest forms of expenditure behind buying a house. The key to investing in such necessities is saving as much as possible in advance to give you the best available options.
The thought process that we all go through in advance of contemplating such a large outlay with our personal finance can be quite a lengthy and daunting one, with many individuals either delaying the process or reprioritising where the funds are channeled due to other and maybe unforeseen factors of greater priority.
With having to balance essential bills for food, clothes, gas, electricity, fuel and so on, this can often leave us all feeling slightly jaded, demoralised and void of any tangible financial support on top of the monthly wage for a new vehicle.
Whether a necessity to get from A to B, or if your existing car has reached the end of its life, a savings pot may never leave enough in the kitty to buy a car with any redeeming qualities to run without any major problems for a decent enough period of time. This can often leave many in a dilemma, with those that choose to run to expensive payday loan companies, mistakenly forgetting to check the small print on APR accumulated over lengthy periods of repayment. Others do have the luxury of time on their side to accrue the balance to afford their ideal car.
This beggars the question, what do you do if you simply don’t have the savings; or don’t wish to turn to expensive payday loan companies? There are options available, with various websites and watchdogs available to research, which is highly advisable. Many car finance organisations such as Money Barn can provide guaranteed car finance, and will take more into account than just an individual’s credit rating before offering finance.
It is worth evaluating a range of car finance options and schemes before biting the bullet and making the purchase. The best advice to be given would be to save as much as possible for your deposit on the vehicle before seeking car finance to pay off the remaining balance. After all, choosing the right finance scheme for you may even result in you securing ownership of a better car than you initially envisaged.
Putting down a good down payment is the best way to go if you can’t afford to pay in full. We were able to put about 35% down on our last car and it helped us get it paid off quicker and give us a better rate for the loan.
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For sure, that down payment is one of the most important things when buying a car. If you borrow the whole cost of the car, you’re going to be paying interest on a sizable chunk of money from the start.
I agree my goal is to never take out a car loan again, and save for the purchase of my next vehicle. On top of that I plan to make my current vehicle last as long as it can. I’ve had my fair share of mechanical issues with my truck but it’s still less than making a $300 to $500 payment each month.
It would be nice to never have a car loan again, but I don’t see myself completely avoiding it. I’d rather have my money tied up investments that produce better returns.
We will save up for our next car purchase. Our current car is in very good working order and has been paid off for a couple of years now. For those who want a new car but can’t afford to pay cash, putting down a big downpayment is the way to go, or shorten the timeframe of financing.
Hopefully that car lasts you a while now KK. My car is all paid off and I’m hoping to get at least several more years out of it. The only problem is that it isn’t a very practical car if I start a family. So that might get me financing another car sooner than I’d like.
I plan on buying a new car soon and will either finance it (if the rate is below 1.5%) or just pay it in cash.
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It must be nice to pay for a car with cash, but I’d just be too tempted to let that money work for me in stocks and pay a low financing rate.
I think that for the average person, they will be seeking a car loan because most don’t have the money to pay in full for a car. I think you should take the time to put as much down, but not enough to make you car poor.
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You’re absolutely right that most people just don’t have that kind of cash available. It is usually tied up in retirement investments or just going towards bills/debt.
I have always bought cars and motorcycles cash. I would rather save up than ending up making payments on a vehicle that I wrecked or got stolen, etc. In a paid for vehicle at least I feel I don’t owe anyone anything in case *fingers crossed* something goes wrong. I’d rather have a $5K paid for than $50K financed car.
Good point about those worst case scenarios. That would really suck to still be paying off a car after you no longer have it. Luckily insurance normally covers stuff like that. When I wrecked my last car I was still paying off the car loan, but the insurance payout covered that and helped me get a new car.
Reading the fine print is great advice, there are often hidden fees added to the loan or bubble payments at the end of a finance deal that can easily turn a good deal into a bad one.
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The problem is that people are just so used to skipping the fine print. For something bigger like a loan, you really should take the time to make sure there aren’t any surprises. It’s not always as simple as just term and interest rate.
We will be paying off our car loan in a couple of months. I’m working on my wife to take the money we were spending on car payments into a savings account to try to pay cash for the next car. Of course, there are so many other things the money could be going towards, it might be an uphill battle!
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I don’t blame her for being resistant. When you are just paying off a car the last thing you want to think about is how you will pay for the next one. It’s easier to just try to ignore while you focus on other financial goals.
I agree that you need to do your research before signing that loan. Every lender will tell you they’re offering you the best option and that no one else will give you a better rate. Now unless your credit is close to 450 definitely do homework.
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That line probably fools a lot of people. They just assume that they wouldn’t lie about giving you the best rate. When people are making big commission, you shouldn’t expect them to always be completely honest with you.
I like the idea behind leaving a good size down payment, if you can’t pay for the entire car with cash. Taking on debt for me is really difficult, but if it is a necessity I guess some people have no choice.
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I think even if people have a choice about it, there are times when it makes more sense to finance than pay with cash. These days you can get very low finances rates that are far lower than what you can make with a sound investment. So why not take advantage?
This is something that has been on my mind lately. My commute went from 5 min to about 20. It’s defiantly not something you should do without careful consideration.
Like John, we tend to put at least 30% down when financing a car. It makes for lower payments and better rates.
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20 minutes is actually a very reasonable commute time. Around here countless people commute from over an hour away just so they can get cheaper housing. Personally I just couldn’t do it. Spending that much time driving every day would drive me crazy.
Good topic iffy plan.
The best down payment on a car is 100% of the purchase price.
Can’t afford to buy it cash why do you think you can afford to pay for it plus interest?
Rich people think rich. Broke people think broke.
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I’d have to disagree about the best down payment. If you can secure financing below 2%, I think it would make a lot more sense to take that financing and let your money work for you.
I bought my vehicle cash for when I moved to Canada and it was a few years old, mint condition. I had no desire to pay interest or have any vehicle debt. On the other hand the Mrs. had her vehicle financed at 0% interest with a $7000 DP over 5 years. The vehicle before that she paid cash for it was a neon (cough).
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Sorry to hear that your wife owned a Neon lol. Good thing she changed that
With 0% financing, I don’t see why anyone would pass that up. I think even if I had the cash available, I’d take low interest financing so that my money could be used for better investments.
Fortunately we had some money saved up so we didn’t have to finance our “new to us” car after ours was flooded during hurricane Sandy.
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Ouch…that sucks that your car was flooded during that mess. You must be one of countless others who had that problem. Hopefully you had some good insurance to help out with that.
I hope I never have to take out a car loan again, but if I do, I’d certainly shop around and have a good down payment ready.
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It’s crazy that anyone would buy a car without at least some kind of down-payment. That’s one sure way to ensure you don’t get the best financing rates.
We just save. A lot. It took us two years to save enough to pay mostly for a car out of pocket. And boy it was worth it. Our loan was very small and reasonable. So if you can, the best financing option is actually to not finance! Pay cash by saving up, like they did in the good ol’ days!
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People have become pretty spoiled by just assuming they can finance anything. A lot less people would be buying expensive cars and big houses if they had to save up the entire amount first. Whether to finance or not depends on what kind of interest rate you can secure. If you don’t have the best credit, definitely save up as much as you can first.
Here’s a concept which although I like, I haven’t been disciplined enough to follow as yet. When you finish paying off a car, take the monthly car payment and put into an account every month (or an envelope in you use the envelope budgeting technique). If you hold on to the paid off car for at least two years, you should have a significant amount towards buying your next car when the time comes. especially if you refrain from buying a new one and get one that’s a year or two old.
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I’ve heard of that strategy before, but I just couldn’t stomach not getting a decent interest on all of that money. It would be one way to avoid future car loan payments though. The other problem is that once you have a decent chunk of money saved up, it would be tempting to use that as an excuse to upgrade or use that money for something else.
I typically recommend only cash and only used cars. Your local credit union can be one of the best sources to get a loan which is why you should keep a small balance on hand with one at all times.
Buying used cars is a good idea, but I’m not a firm believer in cash only for buying cars. As for credit unions, I’m sure you could get a loan there even without a balance. When I’ve gotten car loans in the past they usually reach out to various banks and lenders to get the best rate.
I can’t really agree with financing a car… or financing anything for that matter. The only exception is a home because it’s extremely advantageous financially (not including tax deductions). I think that if you can’t buy it in cash, you can’t afford it so you need to save more before you buy it. If you *need* a new car, get a used one. I got one for $4k and it’s needed maybe $3k worth of work over 10 years and it’s gone over 60k miles since I’ve had it!
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I don’t think saving up first is always practical though. Sometimes you need a new vehicle when you aren’t expecting it. Also the return you can get on an investment can be a lot more than the interest rate you’d pay on a car loan. So personally I’d rather put my cash to work for me.