Buying on credit is often the most popular option in this scenario. Only about one in three vehicles is paid for in cash. However, it is not necessarily a lack of budget. One can then wonder what reason pushes buyers to favor a credit solution.
As a general rule, when credit rates are in low periods (from 0.5% to 3%), buyers of a new vehicle, whether new or used, prefer to resort to a small loan. to the bank or a consumer loan rather than using their savings.
At all the doors we can knock on to obtain credit, professionals, whether bankers or dealers, will always have an interest in encouraging us to subscribe to it.
Indeed, as interesting as it is, a credit offer has a cost. It is therefore important to take a look at the various opportunities on the market at the time of purchase. When the credit is at zero rate, compulsory insurance is often added to the total price of the transaction. Visit here for Cash for car
BEWARE OF MISLEADING COMMERCIAL ARGUMENTS
Whenever you take out a loan coupled with the purchase of a motor vehicle, a series of commercial arguments will of course try to reinforce your conviction that this is the best option in financial terms.
You will often be told that you will gain more than making your money grow by letting it sleep in a savings account, for example. This type of argument can be misleading, which is why when in doubt, it is best to always give yourself some time to think it over before making your final decision.
One thing is certain: a loan that has a higher rate than the interest rate on a savings account will necessarily be to the disadvantage of the purchaser. The reverse is not necessarily true, so be careful with quick calculations.
INTEREST RATE VS AUTOMOTIVE CREDIT
Even if the numbers a salesperson or credit representative consider to be true, their calculations can mislead any customer.
Thus, if we take the example of a livret A, whose interest rate is 0.75%, and the loan rate is 1%, we could carry out a demonstration aimed at proving that the deal will save the borrower money.
However, these demonstrations forget an element: the credit induces costs. This information alone makes it easy to understand that you never save money by wanting to borrow on credit. Indeed, there will be a shortfall on your savings. This is often what is omitted in a sales pitch.
THE ADVANTAGES OF CREDIT
Of course, there are positives to going with the credit solution. The main advantage is that you can spread your payments over several months, or even years in some cases.
If there is a cost, we can eventually decide to include this cost in the overall budget we want to dedicate to the purchase of the car. It remains to find the most attractive offer possible, which will allow you to spend the least money on interest.
The advantage of financing yourself with a loan or credit is also that you will generally have access to a better car than if you paid for it with cash.
For example, if your car budget is $ 5,000 and you buy a used car paid for in cash, you are probably going to use that amount as a down payment for a new car, you can greatly expand your car horizons with credit. If you have good credit, you can easily afford many recent models.
PAY YOUR NEW CAR IN CASH
So you might rightly think that buying a car with cash is more beneficial than financing because you won’t have to pay interest, as explained above. After all, with a cash offer you are paying exactly the price listed and no more.
When you finance, you have to pay off the car with interest, which means you’ll end up paying an additional amount on top of the purchase price of the car. So, is this way of thinking correct?
The answer is: not necessarily.
While we agree that buying a car with cash is generally better than financing, there are many situations in which this is not the case. The best example is if you qualify for a favorable interest rate.
In this case, paying cash may not be the smartest thing to do because you will lose very little money on financing. You will have the option of keeping your money for other projects or investments.
Let’s take a real-life case: let’s say you want to buy a $ 8,000 car and you can afford to do it with cash. If you want to.