Should I take a loan to buy a car? Well to be honest it’s a big question because it comes with decisions that will affect your life for a least a few months. So, if you’ve decided on your next vehicle but you need help funding the purchase, taking a loan to buy a car is a common solution.
Using a dealerships car finance to buy a car is a common way, but some people are not aware that yes, you can use a personal loan to buy a car as well. If you’re just aware of this then read through as we bring you the details.
So, to answer the question should I take a loan to buy for a car? Let’s explain the types of loans and how they work.
in this article we talk about;
- Should I take a loan to buy a car
- Car finance (pros and cons)
- Taking a loan( pros and cons)
- How to get car finance or a loan
Paying for a car with a loan means you own the vehicle outright and it can also be a relatively cost-effective option, although the cost will depend on your credit score and the interest rate of the loan.
Car finance works slightly differently as you don’t own the car until you pay off the finance in full. However, you can choose to return the car with some types of car finance, which isn’t possible if you buy a car with a loan.
Comparing car finance and taking a loan.
If you buy a car with a personal loan, you can split the cost over a number of monthly instalments at a set rate of interest. Terms can be up to seven years.
The contract is with the lender, usually a bank or online lender, and they are completely separate from wherever you choose to buy your car. You can use the money to buy a new car outright or use it to pay for a portion of the car’s cost. The cost of the personal loan will depend on your income and your credit score, with the best rates given to those with excellent credit scores.
Car finance also allows you to spread the cost of a new car over monthly payments (with interest), but the agreement is with a car finance provider rather than an independent lender. You usually pay a deposit at the start of the contract, followed by monthly payments during the term of the contract, and then, depending on the type of car finance you have, you can either pay a lump sum to keep the car, swap it for a different model, or return it.
Car finance can be a useful way to help someone pay for their car, but it may not be suitable for everyone.
Pros of car finance
- There are different types of car finance available to suit different budgets and preferences
- You may be able to buy a more expensive car than you’d be able to pay for outright.
- If your financial circumstances change and you can’t afford the repayments, you can cancel your car finance and return your car.
- It spreads the cost of a brand-new car across affordable payments.
- You can choose to return the car if you have a hire purchase or PCP agreement..
Cons of car finance
- The interest costs are usually higher than a personal loan.
- You don’t own the car until the contract has ended and you have made all the necessary payments.
- If you fail to make repayments, it will damage your credit score and your car could be repossessed
- You may be charged a fee if you exceed any mileage limits on your PCP contract
- If there is any damage to the car when you return it, you’ll need to pay for the repairs
Taking a loan
A personal loan can be a cheaper overall option for buying a car, but this will depend on your credit score
Pros of taking a loan
- When you buy the car, it’s yours from the beginning and you are able to modify it or sell it.
- Interest rates on personal loans could make them one of the cheapest ways to borrow money. You can use the money to buy a car from any seller, not just from a dealership.
Cons taking a loan
- The car’s value will depreciate so you won’t get as much money back if you sell it.
- You’ll need to have an excellent credit score to be eligible for the best interest rates.
- Monthly payments can be higher than on PCP car finance.
How to Get Car Finance or a Personal Loan
You have a lot of options when it comes to facilitators of both car finance deals and personal loans Generally, a personal loan can be applied for from a bank or online lender while a car finance deal is arranged through a dealership or a finance provider.
Whichever provider you choose it is always advisable to shop around for what you think is best for you and you can comfortably afford it. It’s also worth seeing if you can improve your credit score to gain access to even more competitive rates.
But you shouldn’t just think about cost. You will also need to consider other factors such as how important it is for you to legally own the car, and also whether you will want to change cars in a few years. You can also decide to own your automobile outright there you have the option to compare personal loans to see what rates are available. Make sure you are aware of the differences between an unsecured loan and a secured loan.
If you have read through this article then surely your questions on should I take a loan buy a car has been answered with all the details above. We took our time to explain all the options and how they work to give you the best information.