Is Borrowing Money to Buy a Car a Wise Idea?
A car can be a really expensive purchase and this is why a lot of people borrow money in order to buy one. This is understandable but it is worth considering whether it is a sensible idea for you.
Debt is always expensive. Whatever type of debt that you have; it is likely that you will end up repaying more than you borrowed. This because the lender will charge you for that service. This means that you need to consider that the item that you buy with the money that you have borrowed will actually cost a lot more than the sale price because of the cost of the loan that you are taking out to buy it with. You have to decide whether that extra cost is worth it. It is not always easy to make this decision.
It can be very difficult to say whether a loan is a good or bad idea. It can very much depend on the borrower’s personal circumstances but also on what will happen in the future. With no crystal ball, then it is necessary to make a risk assessment, predicting different future outcomes and consider which option is the best for you. This is not always easy to do because you have a desire for the car which will be likely to override other things. Try to step away from the situation and look at things logically to make a good decision which is well thought out.
It is wise to start with thinking about the amount that you need to borrow. It is worth getting a car which you think will be reliable and will last a god few years without needing major repairs. If you want this, then you will need to pay a reasonable amount of money for it, in order to get good value for money. However, there is a point where if you pay more money, you will not get a more reliable car. Some brands of car are more expensive anyway and bigger cars are generally dearer than smaller ones. Some types of car, such as sports cars or ones with special features can be more expensive too. The differences in reliability between these are generally not related to their prices. Therefore it could be worth opting for a cheaper brand of car which is smaller and has less fancy features, in order to keep the price down. Then, if you do decide to borrow money, you will not be borrowing more than you need.
It is also important to consider what you will be using the car for. If you will be using it to go to a job and you do not have a car at present, then it could be a worthwhile investment. If you could not do your job otherwise or if public transport is more expensive, then you could find that you will be better off having the car. Although the loan will cost you money on top of the price of the car, if having the car leads to you being able to earn, then this could be well worth it. However, if the car is just for fun, then it is a more difficult decision. It will enable you to visit more places, but can you really justify the cost for this. It depends really on whether you think it will add a lot to your life and how much pleasure you will get form it compared with any problems that may arise as a result of having the loan, such as having to go without things each month in order to manage the repayments.
You do need to consider the future though. Think about whether it is likely that you will able to afford the car repayments for the full term of the loan. The loan may go on for a number of years and you will need to be sure that you will be able to afford those repayments all of the time. Consider what might happen if you lose your job or cannot work and how you will manage the repayments then. Think about the likelihood of this happening and whether you are prepared to take the risk.
It is also well worth comparing loan costs before taking one out. It can be tempting to get the loan form the place that you buy the car as it is convenient. However, this can be a really expensive way to borrow money ad it is worth comparing lenders. A few percent difference in interest rates can make a big difference over the term of a loan, so compare some and work out how much you will be paying in full using different lenders. Remember to make sure that you include the setup fee and any administration charges as well.