That moment when you realize you need a new vehicle is never pleasant. Your financial past (and your future lack of money) will likely flash before your eyes. Then, you have a lightbulb moment – why not just get a new vehicle on finance?
Sure, financing doesn’t save you money in the long term, but it does stem the tide of a sudden substantial outgoing, hence why it appeals to 85% of modern car owners.
In some instances, financing can certainly be for the best, ensuring that you aren’t reeling for months, or even years, off the back of a new vehicle.
But, with high interest rates and sometimes steep monthly payments, financing also runs the risk of adding to a debt snowball that’s not going to help you save money in the long term.
To help you decide whether financing really will free your finances, we’re going to consider three key considerations to take into account before you commit.
# 1 – Your vehicle of choice
Brand new vehicles come in at an astounding $38,960 on average. That’s an amount that very few people can afford to part with upfront meaning that, if you do have your eye on a brand new release, financing probably is the best way to achieve that goal.
By comparison, if you’re looking at cars from a few years ago, or even as recently as 2019, the chances are that you’d be better off looking at used cars, which are substantially cheaper and could still see you landing that dream vehicle.
Even better, lower upfront costs mean no interest, and that’s a guaranteed way to save yourself a fortune in the long run.
# 2 – Your credit rating
A poor credit rating can send monthly car payments through the roof.
Admittedly, even these costs are better than the expense of a new vehicle upfront but, if you’re continually struggling to get enough money together, you could soon find yourself in arrears.
By checking that you have a decent credit rating, or working to clear any discrepancies before you apply, you can just about keep monthly costs down. Or, if your credit rating is beyond repair, it may be best to keep financing off the table.
# 3 – Your usage
Financing is typically offered on a set mileage and includes things like servicing. This is where you stand to save the most money but, even here, savings are dependent on your usage.
If you rarely drive your vehicle, you may well end up paying more than you should for mileage and maintenance overall.
By comparison, if you drive a lot, these included benefits could save you from maintenance costs that quickly add up. Ask yourself, seriously, how often you use your vehicle, and whether that amount of driving is going to warrant this expense.
Can car financing be worthwhile? Absolutely, but it isn’t for everyone. Make sure that this is the right choice for you by keeping these considerations in mind, and comparing overall costs with any possible alternatives before signing on the dotted line.