When it comes time to buy a new car one question you’re going to need to figure out is how you’re going to pay for it. There are many different options and they all have their own distinct advantages and disadvantages that we’re going to break down for you in this article to ensure that you make the correct purchasing decision.
Option 1: Cash
Cash is by far the simplest way to buy a car, in fact that goes for any purchase, you hand over the money and the car is yours, no mess and no fuss. There isn’t any interest to worry about or negotiations about long term plans and the car is 100% your property as soon as the deal is signed.
The big drawback of course is that you need to have the cash in order to buy with cash which for most people isn’t all that feasible, and even if it is it may not be the best idea to spend so much cash in one go.
Option 2: Auto Loan
The most common option for buying a car is with an auto loan, usually negotiated through the dealership itself. The prime advantage of doing things this way is that you don’t need all of the money up front meaning you can likely get a much better car than you could regularly afford with cash.
The downsides with loans however is that they’re long and complicated. You still pay the full price of the car just stretched over a long period of time and with interest added. And if you have a low credit score you may end up stuck with worse interest rates that can stack up in the bills department.
Option 3: Leasing
Another option to consider is leasing. Leasing is different because you’re not actually buying the car and are instead renting it for a long period of time with the possibility of either buying the car or trading up when the lease term comes to an end. The advantage is that lease payments are cheaper than loan payments month to month, however at the end of the lease term you don’t own the car which means you don’t have any financial assets when the period is over.
Option 4: Line of Credit
A slight variation on a typical car loan, a line of credit will likely have a higher interest rate than a loan, however it will offer much more freedom when it comes to repaying, allowing for either regular payments, or lump sum payments depending on your situation.