I NEED TO BUY A CAR! WHAT SHOULD I DO?
It could be your very first car, you want to replace an old vehicle, or you just dream of owning the latest model from your favourite brand, buying a car raises the question on financing...
What are the solutions available to enable you pay for your car? This article aims to open up new horizons for you!
START BY DEFINING AN OVERALL BUDGET FOR THE VEHICLE
Before stepping on the accelerator, take the time to estimate the monthly budget you will need to enjoy your vehicle.
You have to think about all the costs that go with owning a car:
- Routine maintenance (tires, oil change, overhaul, e.t.c.)
- Parking, toll fees in some cases
These fees represent a monthly budget that should not be underestimated.
You also have to think about more exceptional costs such as taxes, technical control, registration fees when buying a new car.
This overall monthly budget estimate should not put the brakes on your project, but should guide you towards a choice of vehicle and a financing solution.
NEW OR SECOND-HAND CAR?
It is a question of financial means, but that’ not all. A new “small car” may cost less than a used 4X4. So you also have to think about how you will use your car and how long you expect to keep it.
With a new car, it is advisable and sometimes compulsory to take out comprehensive insurance. The insurance premium will be higher than third-party insurance, which is generally recommended for a used car.
However, a used car may need frequent repairs, and that can have a serious impact on your monthly budget.
If you plan to drive a lot and over long distances, the risk of having mechanical problems will probably be greater than if your car is intended for short trips around town.
Likewise, newer models are generally more fuel efficient than older ones.
A car is a big purchase. Compare models and get advice from the appropriate specialists.
If you are looking for a used car, be even more vigilant: examine the car carefully, try to identify any repairs that may have been done, signs of accidents and ask to test-drive it.
Also find out about its history and check that the papers are in order and that the owner is clearly identified.
If in doubt, wait for another opportunity.
VARIOUS FINANCING OPTIONS (WITH OR WITHOUT A DOWNPAYMENT)
You may be thinking of using your savings to buy your car with cash. This saves you the trouble of taking out a loan and paying extra fees; it’s a good idea for a used small car that fits your budget.
Buying a new vehicle with cash is not always advisable because a car quickly loses its value and it is risky to use all your savings on a purchase of this kind. If you were to have a big unexpected emergency, it would be better to keep the money available in a savings account.
Buying on credit
If you need a loan to buy your car, that would be a “Consumer or Personal loan”.
The names vary among banks and loan institutions. You may be offered a car loan, an equipment loan, or just a consumer/personal loan. The principle remains the same:
- The monthly repayment instalments are fixed and will be spread over an agreed period.
- You can buy a new or used car. The loan is granted according to your situation and your repayment capacity and not according to the condition of the car or the chosen model.
- It is not always necessary to make a personal contribution or downpayment, that is to say, to have an amount of money that you are going to invest in your purchase.
However, with a personal contribution, there are 2 advantages: a reduced loan amount and easier approval of your request.
Before committing to your repayment plan, don’t forget the overall monthly vehicle expenses (fuel, e.t.c.) that will weigh on your budget.
If all the monthly expenses seem too heavy to bear, it is better to review your plan:
- Try to increase your personal contribution
- Consider a loan for a longer period, with lower monthly payments
- Or go for a cheaper vehicle.
Lease to buy
This is also known as leasing. It is like a loan but in this case, you do not own the vehicle.
Leasing-to-buy allows you to rent the car of your choice and you repay in equal “monthly rent” instalments.
You have a purchase option which allows you, after a certain period, to buy the car at a price agreed in advance.
On the due date, you can also choose to lease a new car.
This financing option is sometimes possible for used vehicles.
The monthly instalment amount depends on several criteria: the price of the vehicle, the duration of the leasing contract, the authorized maximum annual mileage (otherwise additional costs would apply). Insurance and maintenance costs are generally included in the instalment amount.
An initial contribution is often required.
Leasing-to-buy is a good solution for people who like to have constant access to the newest car models and change them regularly.
It is also a practical formular for companies who need a fleet of vehicles in good condition, with a maintenance contract and insurance included in the leasing agreement.
However, please note that if the car has been damaged and you do not wish to exercise your purchase option at the end of the contract, you may be asked to cover repair costs.
Long-term leasing works like leasing-to-buy, but without a purchase option. At the end of the contract, you can lease a new car.
Offers from car dealers
Car dealers sometimes offer loans to buy vehicles from them. You have the freedom to compare their loan offers with those offered by your bank.