When purchasing a used car for the first time, it can be a little intimidating. Making the appropriate choice is crucial if you want to obtain a great deal on a used car because buying a used car may be a difficult undertaking.
So, if you are thinking about getting finance for a used car, there are many things to consider. Because while there are many pros to car finance, there are also some cons that you should try your best to avoid.
Weighing the pros and cons of any finance contract is usually a good idea, as it will usually be a long-term contract and buying a vehicle can be one of the most expensive purchases you’ve ever made – after your home, your car will often be your most asset. Essentially, this is not a decision to be taken lightly!
Pros of financing a used car
Financing a used car is the easiest and most common method of purchase. There are several benefits to taking a loan to buy a used car. Let’s look at them now.
Low down payment and up-front cost – Most used cars can be purchased with a very low-down-payment – often only 10% -20% of the car price. You can also get a 0% down payment in some cases however, this will lead to higher overall lifetime costs to finance your vehicle.
Reasonable APR
Regardless of your credit rating, it’s easy to secure a reasonable APR on a used car. Even people with bad credit can get a fair deal when it comes to car loan financing, as lenders can confiscate the car in case of non-payment – greatly reducing their risk.
Helps build your credit rating – Auto loans are a great way to build your credit rating – especially if you’re trying to recover from a negative credit rating.
Allowing you to keep your savings
Blowing up your savings on a large cash purchase is often a bad idea – even if it’s a car. If you spend all your savings buying a car directly, you may be out of luck in the future if you need quick cash. By lending your car, you can keep your savings intact – and have the money to pay for unforeseen situations or emergencies.
Low price
Used car buyers can take advantage of rapid depreciation of 20 per cent in the value of a new car in the first year and about 40 per cent after three years. Even lower average prices for pre-owned vehicles provide a better chance of being able to pay in cash or make a large down payment for your purchase. You can also find newer, more specialized models than you can afford.
Small loan amount
With lower prices, it is not surprising that used cars have a lower average loan amount than new ones. Depending on the terms of the loan, it can translate into lower monthly payments and smaller total interest charges.
High-quality options
The continuous improvement in vehicle quality and reliability has resulted in a range of great models being used in the market.
Fast payment
Used car loans are usually shorter than new car loans, allowing borrowers to repay their vehicles loan earlier.
Cons of financing a used car
Reliability
Despite the quality improvement, the reason is that previously owned cars will generally be less reliable than newer models. The older the car, the more money you will have to spend on repairs, especially if it is no longer covered by the automaker’s warranty. The driving behaviour of previous owners also plays a role in the reliability, which is why reporting a vehicle history is important. These reports include accident records, service history, and car title status.
The overall cost
When you finance a car, you will pay more than that if you buy it directly – is just a fact. The interest you pay on your loan increases – so lending a car almost always costs more overall, compared to just buying cash.
Low Negotiation Leverage
When you finance a car, you don’t have too much negotiation leverage. You can cut deals here and there, but you are probably bound by what the dealer offers you. On the other hand, cash payments are very attractive for dealerships. Dealers know they will make an immediate profit with minimal paperwork – and may be willing to negotiate a better price to get rid of the car quickly.
You don’t own your car until you pay it – When you finance the car, you don’t own it until you pay it off completely, until that time the issuing lender has the title, and if you don’t make the payment, issuing lender can repossess it.
To conclude:
The choice of whether to finance a used car depends on your credit, your savings, your financial situation, your income, and a variety of other factors. Without knowing the specifics, it is difficult to recommend.
