Financing the purchase of a car can be a dilemma. Many potential buyers of vehicles doubt which method is best when they want to purchase a car. Sometimes, sellers seek to take advantage of this question more than help solve it.
It may seem counter-intuitive, but the parties with the biggest interest in financing a car purchase are the dealers and the automotive houses. It would be logical that dealers would be pleased if all customers could pay the total amount without delay. But in many cases, the opposite is true.
As the sales volume has increased, sellers and dealers began offering their credit plans. As a result, customers can end up paying more than initially agreed. The total amount the customer pays can be substantially increased and derived from commissions, interests, or additional services acquired.
Financing Advantages
The main advantage of financing the purchase of a car is that it is unnecessary to have the total value of the property available at the time of sale. However, other conditions, such as interest payment, can impact that advantage.
For those who have decided to purchase a car on credit, having the options offered by the dealers can represent a significant benefit. Unlike securing financing from banks and other financial institutions, the financing procedures at dealerships are much quicker and simpler. Risk analysts in car sales work within flexible criteria when approving applications. Clients with a credit history that is not clean and who would not typically receive loans from a bank are reviewed and often approved. Additionally, many companies that sell vehicles will accept a used car as payment. This is a practical solution for those who do not have a large budget.
Financing Disadvantages
If you have the available liquidity for a cash investment, financing a car’s purchase should not be an option. Many of the ‘advantages’ offered when agreeing to purchase a car in installments end up far from adding benefits to buyers, including:
- Rebates of up to $ 1,500 are used to finance the purchase; however, at the end of the repayment process, the client pays interest that equals the discount plus more.
- An advantage of dealer financing is the option to enjoy after-sales services. However, no seller will directly admit there will be a cost unless the buyer requires a written proposal.
- Each monthly payment includes expenses like routine maintenance of the vehicle. The same applies to the ‘included’ insurance policies and other ‘advantages’ like replacing damaged parts, crane service 24 hours a day, or fines management.
Depreciation
A key factor must be considered when evaluating whether to finance the purchase of a car: depreciation. Whoever parks a car just outside the dealership in his garage should know that his new vehicle has already lost at least 10% of its value.
Within three years of leaving the dealership, a car’s value will have decreased by at least 30%. During this time, the fixed monthly payments must be paid until the end of the contract and will not be adjusted to the new value.
Final Recommendation
Those who choose to finance the purchase of a car should take some basic precautions to avoid unnecessary surprises:
- Read in detail the contract that is going to be assumed.
- It is always a good idea to seek advice from specialists in the field, whether with a dealer or a financial institution.
- You should not secure financing without the ability to comply.
An excellent way to calculate this is that monthly fixed fees cannot exceed 20% of the family budget.
Conclusion
In conclusion, financing a car purchase presents advantages and disadvantages that buyers should consider carefully before deciding. While financing offers the benefit of not requiring the vehicle’s total value upfront, it can result in higher overall costs due to interest payments and additional services. Dealership financing may provide quicker approval processes and flexibility for individuals with less-than-perfect credit histories, but buyers should be cautious of hidden costs and inflated prices.
Moreover, the depreciation of a vehicle should be factored into the decision-making process, as it can significantly impact the vehicle’s value over time. To mitigate risks and ensure a favorable outcome, buyers should thoroughly review contracts, seek expert advice, and only commit to financing arrangements within their means. By exercising prudence and diligence, individuals can navigate the complexities of car financing and make informed choices that align with their financial goals and circumstances.
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 platform where their QuickBooks™️ file, critical financial documents, and back-office tools are hosted in an efficient SSO 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.