The process of buying a car involves a few crucial steps. But some critical steps must be completed pre-purchase. The steps that one needs to complete before the purchase include the following:
- Analysis of the financial situation
- The setting of a budget
- Listing down of required specifications
- Payment Methods
These are the four most essential steps that must be completed before a car is purchased. All these contribute to making the process of buying a car simple and stress-free. Analysis of the financial situation helps in deciding the amount that a buyer can spare for the car. Having a strict budget and listen to requirements provides the buyer with an upper hand in the price negotiations with the car dealer.
After all, this has been done, the most significant decision has to be made, the payment method. Selecting the method of payment varies with the type of car one wishes to purchase. Here are three ways to pay when buying a car and their advantages and disadvantages.
Out of the three payment methods for buying a car, paying through cash is the most straightforward one. To make it simple to understand, it is just like buying shoes or a burger. A customer pays and gets the item without any stress or difficulties.
The main advantage is that people save themselves from monthly payments through this method, freeing themselves from the liabilities attached. It does not affect their monthly responsibilities, and their lives stay balanced.
Secondly, they have to pay the exact amount, free of any interest. The addition of interests reduces the chances of reselling the car in profit. In addition to this, the reselling of the car becomes more accessible and more straightforward. The chances of earning profits are higher in this case.
There are downsides to everything and even paying for a car directly with cash has its disadvantages. Cars are not cheap. A person needs to work tirelessly for a long time to gather such a vast amount. Paying fully in cash takes a massive chunk of money from the savings, exposing an individual to the stress of emergencies.
A car’s value depreciates every year, and it is not a good investment option. After four years, the price of a car drops to half of its original price, which comes as a massive blow to the car owners at the time of resale.
The most common payment method in car purchases in America is getting the car financed by a third party. An external party, i.e., banks, financial companies, and credit unions, pays off the car dealer. It is a feasible method for many. Due to this payment method, a lot of middle-class Americans have been able to get a car.
There are some fantastic benefits of getting a car financed. As a buyer uses someone else’s money to pay the car dealer, the financial balance is not significantly affected. It helps in maintaining the lifestyle as only monthly payments have to be made.
Cutting out only a few expenses helps people pay off their monthly payments. Once the payments have been successfully paid, the buyer becomes the owner of the car. People who have a good credit score can enjoy loans with lower interest rates. It gets easier for them to get loans on acceptable terms.
Besides great benefits, there are some non-negligible disadvantages of getting a car financed. The very first drawback of this payment method is the interest rates. With financing plans, a buyer is liable for monthly payments and ends up paying way more than a car costs.
It is true that after ultimately paying off the loan, a buyer becomes its owner. But by the time these payments are completed, the car’s value drops to 50% of its original value. When it comes to reselling the car, there are negligible chances of earning any profits. Things are worse for people with a bad credit score. They are unable to get feasible financial plans. Either they end up paying high-interest rates, or the payments are too large.
The last payment option is the leasing of the car. It is a highly unpopular payment method in the United States. Its unpopularity is because a person cannot buy a car; instead, they are forced to rent it.
It is somewhat similar to financing as it also requires payment of a down payment followed by fixed monthly payments. Unlike financing, after the payments are completed, the buyer must return the car to the dealer or replace it.
An individual is not asked to pay the whole loan instead of only the depreciated value. This means that if a lease is five years and the cost of the car after five years equals 40% of the original cost, the buyer will have to cover only 60% of the original price.
In getting a car on a lease, a buyer does not have to pay the whole loan but only the depreciated value. It makes this method one of the most affordable options. Also, the amount of monthly payments is much lower than in the case of a financed car. When the payments are completed, an individual does not have to stress about selling it off. They can return it to the dealer or get it replaced.
As compared to other payment options, leasing a car is attached to the minor disadvantages. The permitted period to keep a car by a lender is not more than three years, which forces an individual to change their rides. A significant downside to getting a car on a lease is that the annual mileage is limited, restricting a driver’s driving habits. If a driver goes over the limit, a high cost is imposed on them.
Making the Right Choice
The payment option depends entirely upon a car buyer’s budget, financial situation, and preferences. Not any people can afford to pay with cash as it will eat a significant portion of the total savings, making the financial situation unstable. But it depends on the buying capacity and the mindset of the buyer.About Complete Controller® – America’s Bookkeeping Experts Complete Controller is the Nation’s Leader in virtual bookkeeping, providing service to businesses and households alike. Utilizing Complete Controller’s technology, clients gain access to a cloud-hosted desktop where their entire team and tax accountant may access the QuickBooks™️ file, critical financial documents, and back-office tools in an efficient and secure environment. Complete Controller’s team of certified US-based accounting professionals provide bookkeeping, record storage, performance reporting, and controller services including training, cash-flow management, budgeting and forecasting, process and controls advisement, and bill-pay. With flat-rate service plans, Complete Controller is the most cost-effective expert accounting solution for business, family-office, trusts, and households of any size or complexity.