While bringing home a new car is a feeling beyond words, buying it can be something that eats up your hard-earned savings. This is why it is important for you to weigh your options as to how to actually buy the vehicle you love. So here is car loans vs. down payments compared head-on.
Deciding What To Go For
The first step toward buying a car is deciding what your budget will be. While this is something that’s quite personal, what matters is that you manage your expenses in such a way, that your budget doesn’t shake up your entire financial life.
If you feel like you can shell out a big amount upfront, without a doubt keep that as your priority. But if you feel, that shelling out a huge amount can be difficult, then go ahead to explore the financing option that can be quite helpful in easing out your vehicle expensive albeit with a few conditions.
The Down Payment Road
Those who are able to shell out a large amount upfront to bring home a car should always go the down payment road. Not only will this give you immediate access to your beloved vehicle without any conditions, but paying upfront for your car will also save you from the hassles of hypothecation, and resale issues. Even if you do not have the amount it takes to bring home a vehicle you desire, it is advisable to invest the savings you have and go for the car you love in a few years.
The Financing Road
The most common method of purchasing a brand new car is a car loan. Offered by almost all banking institutions in India, car loans can bring your dream car to your garage almost as immediately as a down payment. For those who aren’t able to shell out the entire amount, car loans can help to buy a car for such individuals a reality.
With almost all major banks ready to finance as much as 90% of a vehicle’s value, with a car loan, you can save your hard-earned money by shelling out a mere 10% of your car’s value as a down payment. But with this golden privilege comes a warning.
While car loans help you turn your dreams into reality, the magic of financing comes with a duty to repay and that too with interest. This means that not only you will pay back the principal but will also pay back over and above that amount as interest.
To clear the picture better, here’s what the situation will look like: Considering you need to bring home a vehicle whose on-road value is 12 lakhs, and you decide to avail of a car loan that finances 90% of the vehicle’s cost with 8% of interest. In such a case now you’ll end up shelling out 1.2 lakhs as a down payment and Rs. 10.8 lakh would be your loan amount. Now if you chose to spread this loan over for a tenure of 7 years, you will end up paying as much as 3.15 lakhs over and above the principal!
Another speed breaker in the journey of availing of a car loan is high processing fees, the hassle of documentation, and the fact that your beloved vehicle is hypothecated in favour of your bank in case you aren’t able to pay. While this might not be a problem if you pay timely, it surely is a hassle when it comes to reselling the vehicle.
The Bottom Line
So this was all about paying upfront vs. availing of a car loan. So if you are planning to bring home a new car, try and see if you can pay for the vehicle upfront. If not remember the real “cost” of availing of a car loan. Manage your loan tenure in such a way, that you can ensure a timely payment without shaking up all your other expenses. Be careful with your planning as a car loan can also hamper your valuable credit score if not managed judiciously.
