Every day, we make decisions that affect our future. Some of these decisions are small and some are big. You might not think about them consciously but you’re still making them all the time. For example, when choosing a new car, you’ll need to consider whether or not it is worth financing the purchase with a loan from the dealer or bank rather than paying for it in cash upfront. The choice will depend on your current financial situation and how much you can afford to pay upfront (and forgo the use of) at this point in your life.
Gere are five things that you should think about before financing your next car:
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Do I really need to buy a new car?
The first thing you can do is take an honest look at your current situation and decide if there isn’t another way to get the transportation that you need without buying a brand spanking new car. Perhaps, for example, purchasing a lightly used vehicle would be a better option for you. It may still have some life left in it whereas most new cars lose value the moment they are driven off the lot.
How much am I willing to finance?
A new car is only worth whatever amount of money someone is willing to pay for it, which can vary wildly over the course of time. When new models are first released, interest is high and people tend to be willing to pay more for them. Later on, that value declines as the model ages and newer models replace it in dealerships. The same goes for financing a car — you should only finance what you feel comfortable with. If your budget is tight and you feel that $10,000 is the maximum amount that you can spend on a car loan, don’t let the dealer talk you into financing more than that. Car loans should be something that fits your budget and not just what someone else wants to offer you.
Be sure to check out local car loan providers in your area for the best deal personalised to your location. For example, if you’re based in Tasmania look into Hobart car finance to find a great loan option to suit your needs.
How much am I willing to pay each month?
The monthly payment is the amount that you need to be willing and able to pay each month out of your budget. It’s an important calculation because it will determine how much you end up paying for your car overall, including interest charges. Car dealerships often use this figure as a selling point when trying to make a sale — the lower the monthly payment, the better. However, some car loans offer low monthly payments by attaching an unusually high-interest rate to the loan — which just means that you will pay more for your car in the long run.
What’s my credit score?
Your credit score is incredibly important when it comes to financing a new vehicle because this number determines what kind of interest rate you will receive on your loan. If you have a high credit score — which is typically anything above 700 or 720 — then you will qualify for lower interest rates, which means that it won’t cost as much to borrow the money that you need. On the other hand, if your credit score is somewhere in the 500-600 range (or even lower), then you will pay a higher interest rate, which means that it is going to cost you more money.
How long do I plan on keeping this car?
Finally, it’s important to think about how long you’re planning on keeping your new car. Most car loans last for four years — sometimes longer, sometimes shorter — and the longer you’re willing to take to pay it off, the more money you will end up saving on interest charges. If you can afford to stretch out your car loan over five years or even six years, then that’s going to save you a lot of money — and make it cheaper for you in the long run.
These are the five most important things to keep in mind as you contemplate financing your next car. Five years from now, you may very well be glad that you stopped and considered all the various angles before signing on the dotted line for a new vehicle.