So you’ve got your eyes on the next, up and coming SUV. It’s got everything you want from the space to the performance until you look at the price tag attached. You’ve never wanted to go down the finance route. Why? Because let’s be honest the idea of paying back that much money scares you.
UNSPLASH Grahame JenkinsTo not even consider financing a car in this day and age, quite frankly, you are doing yourself an injustice. Let’s face it; we all like choice. So why deny yourself the opportunity?
Car financing not only makes economical sense, but it is very healthy for your credit score too. Interested in finding out why? Read on:
Cash vs financing
Parting with our cash essentially means this: no strings attached, no interest rates to worry about, and the deal is done. But what if it’s not that simple anymore?
The average cost for a used car in the UK is £13,705. So unless you happen to have that amount of money just sitting in your bank account, you are going to be waiting a while for your new car. Plus, if you need bought the vehicle online and need it shipped, that will add at least a few hundred pounds to your overall cost.
If we really think about the main reasons we want a new car, our expectations usually dictate the vehicles we are interested in. Cash alone is not enough to find “the” car anymore. Instead, car finance plans are most consumers go-to when it comes to buying a new or used vehicle. Its appeal is largely based on their affordability; paying back monthly installments with interest that are less destructive on your bank account in the long run.
Let’s think about car depreciation
Following on the car vs financing argument, you can’t ignore car depreciation. In a nutshell, as soon as a vehicle leaves the dealership, the difference in its sale value and when you want to sell it drops. Although depreciation varies between makes and models, you are typically looking at a 15-35% drop in the first year, and up to 50% or more once you hit the three year mark.
Choosing a car that is more likely to retain its value well, will save you money in the long run. Such things like fuel efficiency and trips to the garage may not put as much of a dent on your savings as you think. Instead, the family car you’ve had for the last three years is now worth £12k less than when you bought it. Food for thought.
If that’s not enough, here are a few reasons why some cars depreciate faster than others:
- Number of owners – as far as the motor market is concerned, the fewer owners, the better. This means less chance of dings and scrapes, as well as feeling like a newer car
- Mileage – in short, the more miles you do, the less your car is worth
- Reliability – customer satisfaction surveys and reviews can cast a shadow on any cars reliability. If a car gets a reputation for being unreliable, its value is likely to decrease in response
- Fuel economy – more bang for your buck! The more miles you can get to the gallon, the better
- Warranty – it’s all in the details. If your car goes beyond the standard 3-year warranty, buyers are going to be keener to invest. Everyone likes a bargain after all
How does this all link to car financing?
Well, the newer the car, the less steep the depreciation. So if you go down the financing route, the chance of buying a new or newly-used vehicle is more likely than an outright cash payment – especially if you are leasing rather than owning. Your monthly payments will cover the car’s depreciation, so you don’t even need to worry about it!
Doing your research ahead of any purchase or lease is worth its weight in gold. You can see for yourself how the car value has gone up or down, as well as how similar models have fared.
With financing, there is also more flexibility. There are options to settle your loan early; repairs and maintenance are often included in the warranty, and you can the heads up before the next model of your car arrives in the showroom. Then, if you want to sell your car, getting ahead of the next model from your current one is part of the game.
So let’s summarise. Purchasing a car with finance makes economical sense. Fact. Not only are you opening the door to a broader selection and choice of vehicle, but you are also future-proofing your bank balance in the long run.
