For most of us to get the cars and vehicles we want, auto financing is an absolute necessity. While some of us might have enough capital to buy a car outright (or certainly a used car), very few of us will have the amount of money necessary to outright buy the cars we really want. And this is a real shame, when you consider the huge amount of time most of us spend in our cars (not to mention how important it is that they be completely safe). So why not use auto financing and car loans to afford a vehicle that will be safer, and that will make you happier?
Read on and learn more about how all this works.
Why Car Financing?
As we’ve already discussed, many of us will require car financing in order to afford the kind of vehicle that we really want. While this might seem like a luxury, a newer car can actually help to keep you safer, save money on gas and servicing, and more. A newer car will also retain more of its value when you trade it in (though you should NEVER think of a car as an investment), and it will keep you from tearing your hair out when you are sat in queues for long periods of time. Then there’s the fact that your vehicle actually helps people to form their first impressions of you when you arrive anywhere. Whether it’s an interview, date, or corporate event, think about the kind of car you want to arrive in!
By using some form of car financing you are able to avoid taking a large amount out of your bank account and that then means that you can have more money for the day to day costs of living. The right financing will allow you to manage repayments in a way that is convenient for you, and that helps you to continue living comfortably.
Auto Loans vs Your Other Options
However, there are many different ways to finance a new auto purchase and car loans are far from the only option available to you. Alternatively, you could rent a car or buy the car on finance so that you pay the garage or showroom in set installments rather than in one larger amount.
The best way to get financing for your car is to use car loans, and there are various reasons for this which we will look into here.
Renting Your Vehicle
First, let’s look at renting. This is a great way to get nice cars that you can’t afford and in many ways it also liberates you from the stresses and responsibilities of owning a car too. It is not your place to remember tax and often even insurance will come included.
However, using vehicle loans is still preferable in this case because it means that at the end of the day, the car is yours and you can do what you want with it. This might include things like repainting it, or painting the doors. Meanwhile because you are renting the car you will pay more for it – think about it, if this wasn’t the case then the company would have just sold it themselves. With a car rental the longer you have the car for, the more it is going to cost you. On top of this there are limitations in the cars you can get near you, and there is the fact that you won’t be able to recoup any of your expense as you would with a purchase by selling it.
Buying on Finance
Another form of vehicle financing is to buy on finance and that basically means that you pay in monthly installments to the car loans company rather than paying in one go with car loans. This is again not a wise move because you will be paying a higher percentage on top of the purchase by buying on finance, and because it will be less flexible. Most importantly though, when you buy something on finance you are not going to be able to ever restructure the loan – and if you then need to make changes to the way you pay it back you won’t be able to. This means no forgiveness or flexibility and usually harsh penalties.
Compared with these options, an auto loan will allow you to save money, own more of your vehicle, and enjoy the most flexible payment plans1.
Understanding Car Loans and Bad Credit
While many of us will use these car loans and consider it to be an everyday occurrence, not everyone understands how they work, how they make their money, or where credit ratings come into play. By understanding these factors, it is possible to better manage your money and to be more efficient in getting the cheapest loans and making sure you always pay them back. Here we will look in more detail at how car loans work and why bad credit is such a turn off for lenders.
How Car Loans Work
Essentially car loan companies are investment companies that invest in people like you just as other companies such as banks will invest in stocks and shares. The idea is that people generally generate income – through their work etc. – and this means that investing in a person is a good way to make returns and grow your funds.
Thus, when a lender provides you with a car loan, they include interest and this is the amount extra that you need to pay back on your loan. Unlike stocks and shares then the money you will make for the lenders is nearly guaranteed and measurable. However, like any investment there is of course some element of risk, and this is due to the simple fact that some people can fail to pay back their loans due to financial difficulty. This means then that a car loan company has to protect itself and avoid making bad investments on people who will lose money rather than earn it.
To this end, lenders all banded together to create the credit history system. This then is a record that is accessible by all loan companies which contains your track record for paying off debt. In other words, if you have so far payed off all the money you owe on a regular basis and met all deadlines then it will be good. If you have failed to meet repayments or have failed to pay back a loan altogether then it will be bad and lenders won’t want to offer you the money. This is a bit like analyzing the movement of stock – if a stock has shown steady decline in the past, then it would be unwise for most investors to make a purchase.
Fortunately, there are some companies out there who cater to individuals with bad credit as this is a niche market where there is less competition. These bad credit auto loans offer the same service as other lenders but include those with bad credit. To make up for this however they charge more – this way the profit that they make from those who manage to pay back is greater and that means that they compensate for those investments that don’t go to plan.
There are also steps you can take to improve your credit score and to thereby reduce the cost of car loans. These options include taking out small loans and being sure to pay them back regularly, paying back any outstanding debt you already have, and even disconnecting your name from previous housemates that may be harming your score2.
Take these steps, and an auto loan will be an almost guaranteed way to enjoy a more luxurious vehicle and safer journeys, while only making manageable repayments each month.