Should You Take Out A Car Loan? #CP

Borrowing money to buy a car is popular – but you need to be sure that it’s the right option for you.  Whilst you could save money upfront, there are monthly repayments and interest rates to take into account. Here are just some questions to ask yourself before taking out a car loan, as well as a few tips to help you get the best deal if you do decide to commit.

Can you afford the deposit?

When taking out a car loan, you generally still need to pay a deposit. The lower the deposit, generally the higher the monthly payments and interest rates. Decide how much you’re willing to pay as a deposit and shop around to see if lenders are willing to lend this to you. Some buyers are able to pay for deposits by part-exchanging a previous vehicle.

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Can you afford the monthly repayments?

If you’ve already got lots of monthly outgoing costs, taking on a car loan could be an extra strain on your finances. Know exactly how much extra you’re prepared to pay each month so that you don’t end up missing payments. There are lenders out there that offer low monthly repayments – you generally need to have a good credit rating and be willing to pay a higher deposit in order to lower this cost.

What’s your credit score like?

You should also consider your credit score. Many lenders will not take you on if you have a poor credit history. That said, there are bad credit finance schemes out there as available from sites such as Really Easy Car Credit. You may have to pay higher interest rates, however these loans could allow you to still borrow with a low credit score. You can also consider credit-builder schemes if you have a low credit score.

Is leasing an option?

Leasing can be an alternative to taking out a loan. Monthly rates tend to be cheaper and maintenance costs are paid for you. The disadvantage of this however is that once the lease is up, you must return the car to the company you are leasing from. Buying a car with a loan allows you to still own it, which means that you have more freedom to modify it or sell it.

Is saving up instead an option?

Paying for a car with savings could reduce the need to pay an extra monthly cost and could spare you from having to pay interest, saving you more money in the long run. This may not be ideal if you need a car in a hurry and you do need to have the self-discipline not to dip into your savings for other purposes. Putting money in a high interest savings account could allow you to save money faster – you can shop for savers at sites like Compare the Market.