Purchasing Or Financing A Used Car
The obvious advantage of financing or purchasing a used car is the price tag. The previous owner lived through the depreciation of the vehicle and if they took good care of it before trading it in, you could be in luck! Keep in mind, if you choose to purchase a used car, you will not get all the added advantages of a new car such as a warranty for any repairs or not having to put money down in advance of the purchase. Here are things you should consider before purchasing a used car:
The Financing Interest Will Be Higher
If you decide to finance your used car, the interest rate will be much higher than a new car. Lenders who finance used cars are ripping you off in interest. As of date, the interest rate for financing a used car ranges from 6 to 7% which adds up to hundreds of dollars each year.
The biggest reason interest rates are higher for used cars, the lenders know they can get away with it. Most car loan companies have consumers over the barrel, preying on people who do not have a great deal of money. Used cars obviously have less value than new cars and the period of time you are allowed to finance is easily cut in half. Lenders charging higher interest rates on used cars gives them the edge making the loan worth their time.
Keep in mind, if you buy a new car, some dealerships do not require any money down and zero interest rates for a given period of time. You don’t get this option with a used car and over time, you will pay more for the vehicle than it’s worth. You should also factor in other costs such as buying a warranty policy should your car have to be repaired. You really don’t want to pay these charges out of pocket because they can be very expensive.
Insurance: In Canada, each province requires you have car insurance in order to drive a vehicle. If you don’t and you are pulled over, you will be fined and given a very limited amount of time to get your car insured. Again, the cost of insuring a used car is making your overall cost much higher in the long run. You can possibly get away with liability only but that means the policy will pay for any damages to the other driver but will not cover your vehicle. If you are financing a used car, most finance companies will require you have full coverage or comprehensive coverage – again – even more money! Until you pay off the loan, you are required to keep your comprehensive policy up to date. This means factoring in another $50 a month for full coverage which adds up to $600 each year, then multiply that by how many years you will be financing the car. Usually, there will be a certain amount of money added to your loan so if you are in a car accident, they are not stuck with the bill. Keep in mind, when you finance a car, whether new or used, the lender has control of the title, not you, so they can dictate the demands for your vehicle.
Financing A Used Car
Your monthly payments will be quite high for a used car, not factoring in the interest. This is because the actual loan is shorter for a used car, around 2 to 3 years, where a new car’s loan is around 5 or 6 years. Now do the math, for a 5-year loan on a new car, you will pay around $350 a month, a used car will be around $500 a month.
In A Nutshell
Before making your final decision to go ahead and buy a new or used car, take all the expenses into consideration. Ask yourself if a used car is really worth it once you’ve added everything up. At this time in your life, you might feel purchasing a used car is a better choice than spending the high cost for a new car. Do the math and see if over the long run it’s smarter to go with a used car and consider a new car when you are more financially set.