Should I get a Loan to Pay for a Car?
If you are looking to change your car or buy one for the first time, then you will have to think about how to pay for it. Whether you are buying it new or second hand, you might find that it is too expensive for you to be able to afford to pay for right away. If this is the case, then you might be wondering whether a loan might be a good idea. There are advantages and disadvantages to doing this and it is a good idea thinking them through first before you make up your mind.
- If you take out a loan, you will be able to get the money really quickly and have the car quickly. Most loans do not take that long to arrange and you may even be able to get one from the dealer, if you are using a dealer. If you need a car really quickly because yours has broken down, then you might find that this is the best option to be able to get one quickly.
- If you are borrowing money, you may be able to buy a more expensive vehicle compared to if you use your savings. It can be good to get a dearer car as it may last longer and offer you better value for money. Of course, this will very much depend on what you are spending the money on. If you only have a few hundred pounds, then you are unlikely to be able to get a car that will last you very long. However, if you have a lot more money, perhaps by borrowing it, you will be able to spend a bit more and hopefully get something that will last longer.
- When we borrow money we have to pay a charge to the lender. This is usually in the form of interest on the loan and could also be in some fees as well. This means that you will have to pay extra for your car if you borrow the money. If you use savings or wait and save up for it, then you will not have to pay this extra money. It is therefore a good idea to work out what the cost of the loan will be. Then we can decide whether we think that it will be worth paying this extra money for the vehicle that we are buying. Think about whether we would have still bought it had it been that much more expensive when it was advertised.
- You will have to repay the loan at some point. Many loans will require a regular monthly payment and it is very wise to find out how much this will be. You will then be able to decide whether this is an amount of money that you will be able to afford. Make sure that you very carefully calculate how much you think you will be able to afford in the way of repayments first. Look at your previous bank statements and work out how much you normally have coming in and going out each month. Then work out what is left and whether it is enough to cover the loan repayment. If it is not then see whether there is anything that you will be able to cut back on that might help you to afford it more easily and whether this is something you will be able to do until the loan is repaid. Also consider what might happen if interest rates go up and whether you will be able to afford to pay more in the way of interest rates and what you will have to cut back on to be able to afford this.
- You should also consider whether you will be able to get a loan. If you have a poor credit record then you may find that no lender will be willing to give you money. You might be able to do some things which will help your credit report but these may take too long to be able to allow you to get a loan in the short term. It could be worth checking your report and seeing if you feel you will be able to get a loan and also making sure everything is correct because any mistakes could lead to you being refused a loan unjustly. Also be aware that a credit report that is not so good could lead to you only being able to borrow money at a higher interest rate, so watch out for this as well.