Buying a Car: Loan Financing or Cash Payment?

Auto financing

In the 21st Century, owning a car is more of a necessity than a luxury. Different budget range cars are available in the market, designed for a the uprising nuclear families. The spirit of owning a car is high in India too. Saying that buying a car with words is not possible. If you are debuting in buying a car for a road trip with your family or friends, you must have the basic knowledge about the finance market. The cost of  cars are mostly depreciating. Also you must count a lot of variables while planning about payment. Paying cash looks easy and simple, with minimum paperwork and no further addition of interests. Loans may somewhat look like a waste of money on interests as you pay more on installments. There are cases where a complete one-time cash payment might not be the best idea due to several criteria.

You may face several problems while deciding and framing your budget. You might not want to grab an old model while shedding loads of money on it. The dilemma gets complex when it comes to the decision of whether Car Loans are better than Cash Payment. To clarify your ifs and buts, we will provide you a detailed idea about the benefits and detriments of both.

Loan Financing:

Planning to buy a car but don’t have enough capital? This is where loan financing kicks in. Banks are always there for you to provide loans. Now according to particular tenure, the interest rate is placed. You need to pay EMIs or Every Month Installments which are based on tenure. You can do a minimum but relative down payment and keep 80% or a higher percentage of a loan amount.

Loans are helpful when you have Fixed Deposits and Emergency funds. Also there are some additional taxes on direct cash payments which can be avoided. Although you have to pay installments every month, it is much safer and risk free than raising a huge capital if one time cash payment is done. Best part is the payment is made by the bank on your behalf which helps in keeping a track of your purchase officially.

Like these social securities, there are some drawbacks too. Depreciation plays a vital role in the market of cars. Often the cost of the car gets reduced with time, and you end up paying a lot of extra money through interests. If you fail to pay installments in time bank has the rights to claim and seize your car. There are a lot of paper trails and the whole process is exhausting for both the customer and the car dealer.

Cash Payments:

Cash payments are fast, simple and do not include a huge amount of paperwork like financing. It saves you from the hassles of documentation and repayment. Saves you from adding those installments and additional expenses. In spite of all cash payment requires thorough savings and patience.

Cash payments may not help you to get the car you want or a better but expensive car that catches your eyes. A budget needs to be planned beforehand. You also risk few safety and emergency factors. Like if you have any immediate payment to be made, you might not have the required cash. Cash payment is like the cloud with a silver lining, easy but risky. Also, there are additional taxes included.

You can always take the depreciating factor at your advantage when doing cash payments. Often cash payments come with surprises like free coupons or goodies from the dealer.

How to approach:

This is the most vital question of all. Approaching and planning out the details.

– Always keep the future expenses in mind. Check if there are some events or major deposits in near future. If yes, go for loan, if no, go for cash payment if you are comfortable.

– If you are doing financing or cash payments, always keep an emergency fund as a backup.

– If you are confident with paying installments without fail, opt for loans.

Loans also keeps tracks of your car and the welfare of it to an extent. Direct buying won’t guarantee you these opportunities.

– Extended tenors often have minimal interest rates. Loans can be a better option then.

– If you truly need a car and that too fast, we encourage cash payments. Loans will eventually slow down the pace.

– Keep a good knowledge about the financial market, the taxes induced and the hikes or sinks in price.  Analyze critically and then make your decisions.

Now you can buy the car you want with proper guidance. Stretch your arms for a road-trip but drive safely.

About Jennifer Cribsly

I'm a former real estate broker who specialized in helping first time buyers be able to purchase a home. Now full time mom, part time real estate owner/investor.
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