Other than purchasing a property, buying a car is the most expensive purchase most people will ever make. Whilst a reasonable second-hand car can be purchased more economically, a new car will cost well in excess of £10,000. This means that the majority of people can't afford this sort of financial outlay and turn to a car loan.
Is a Car Loan a Necessity?
Saving for a car costing upwards of £10,000 could take several years. Should a vehicle be required to get to work from a rural location, waiting 3 years to save for a car isn't an option. However, if public transportation links are reliable, a car loan may be something that can be avoided. This is more likely to be the case if at least one family member has a car that can be utilised for social purposes.
Spreading the Cost of Car Finance with Car Credit
A car loan allows someone seeking to buy a car to spread the cost of car finance over a specific number of years. This helps to minimise monthly repayments, increase affordability and fit the cost of buying a car around other household bills. Beware of spreading the cost of car finance if bad credit is an issue due to the high interest payments on car credit.
Interest-Free Car Loans
Those seeking to buy a car may be able to get an interest-free car loan. Provided someone doesn't have a bad credit rating, an interest-free car loan can help minimise monthly repayments. A potential benefit of an interest-free car loan is that personal savings can be put into a tax-free cash ISA or savings account instead.
Bad Credit Car Loans
Those with bad credit may find it hard to get an unsecured loan from a bank. However, it is still possible to get a bad credit car loan in order to buy a car. Whilst a bad credit car loan can be a potential life-line, the high APR can mean that monthly repayments can become unaffordable. The car does not legally belong to the buyer until the final repayment has been made.
Car finance can be a useful option, particularly for those buying a new car that have access to interest-free car loans. Those living in rural localities may also find that a car loan is essential. However, people struggling with bad credit may find that saving for a car is the preferred option.
Those that found this article useful may also be interested in reading about the pros and cons of secured loans and avoiding loan sharks. A comparison of secured loans and unsecured loans will help someone decide which is the better option for their own unique personal circumstances.
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