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Wednesday, 05 December 2018 03:04

Should You Finance A Used Car?

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car Sometimes you get to wonder, is it advisable to finance a used car, see tips before buying? Or should I save up and purchase a new one?

Before you get to make a definite decision, it matters a lot to step back and take a sharp look at both sides of the coin.

You need to understand that financing a used car is not exactly the same as financing a new car. Always put into account loan interest rates, monthly payments, total amount payable at the end of it all, and the car’s depreciation rate when you walk into a car dealership.

However, in case you are caught up in a situation where you need to finance an automobile, there are several aspects you need to keep in check, otherwise, you’ll end up incurring losses.

New vs Used Cars

First and foremost, it is important to consider advantages that tag along with new vehicles. A clean merit to buying a new car is the warranty that comes with it. Most new automobiles come with free repairs for the first few years, leaving you to concentrate on maintenance costs only with can further be maintained with an auto car repair loan service, more information can be found here in case you need such loans.

Also, technology has enabled car manufacturers to effectively fix interior gadgets, car alarms systems, tracking devices and eco-friendly engines, therefore minimizing emissions, facilitating ease of use, and of course, low gas mileage, thereby lessening monthly costs on gasoline.

Used cars also have considerable benefits tied to their name, with the most significant one being price devaluation. The original vehicle owner absorbs the most depreciation hit during the first year. How? Let me briefly clarify it for you.

Depreciation analysis

According to trusted choice analysis, a car depreciates 10% in value immediately it leaves the lot. During the first year, it will devalue by another 10%, making it 20% in the same year. Fortunately, following consecutive years, the price goes down by at least 10%.

What happens when you dent your new ride a little? Frustrating isn’t it? Damaging a new car regrettably increases the rate of devaluation. You can dent your old ride severally, but it does not receive such a large impact from depreciation.

Both new and used vehicles have their merits and demerits. It all depends on your references. Nonetheless, what makes each loan type uniquely stand out, are their terms.

Differences between new and used car loans

Annual Percentage Rates (APR) determine the total payable interest irrespective of any loan type. Unfortunately, interest rates for used car loans skyrocket to up to 7% compared to new car loans, which on average rest at 2-3%.

Sad, right? Creditors believe that they avoid most uncertainties when offering loans to finance new cars compared to used vehicles. This opinion is because in the event the car is repossessed, new automobiles will fetch a higher price than their used counterparts.

However, despite having a higher Annual Percentage Rates (APR), used car loans have shorter repayment periods. Some money lenders grant new car loans to up to seven years while used car loans have a maximum repayment period of up to five years, therefore allowing you to become car-debt free in just a short while.

New car loans are offered to individuals with an exemplary credit track record with credit reference bureaus. However, it is not impracticable to obtain an auto loan from a lender. You can obtain a used car loan regardless of your credit score, whether good or bad.

The good thing about new car loans is that you can comfortably contribute to monthly installments considering the loan amount is stretched out over a lengthy period. Monthly installments for used cars tend to be higher because of the short-term payment duration.

Selling a second-hand car

Also, did you know that you can sell your second-hand vehicle at almost the same price as you got it? Depreciation values for a used car are much lower than a new car.

Imagine this; you decide to weigh options between taking out an 8-year loan for a $50,000 model at 2% APR and a 5-year loan for a 2-year-old $30,000 model at 6% APR.

Notice that you’ll be subject to monthly payments of $564.04, and an approximate total amount of $58,148.19 for the new vehicle.

Contrary, you’ll be required to make monthly payments of $579.98 and an approximate total amount of $34,799.04 for the 2-year-old car.

Factoring in the total amount, you’ll notice that, not only do you save $20,000 by financing a used car, but you save a whopping $23,349.

Market value years later?

Six years later the new car will be worth $15,000; that’s a depreciation amount of up to $43,148. The used car will have a market price of $18,000 after four years; that’s an approximate depreciation of about $16,799.

From this analysis, you’ll discover that financing a used car packs some long-term savings and a 6-year-old “used” car will have a higher market value compared to a six-year-old “new” car. Maybe you can consider this too in your next purchase?

Bottom line remember to obtain a copy of your credit score at the very beginning. This will facilitate making the ultimate decision whether to finance a new or used car. Moreover, you will acquire the “real feel” about how much you’d like to spend without altering budgetary needs.

Also, do not forget to take into consideration all perks that tag along financing both new and used vehicles before making a definite decision to finance a car.

Last modified on Thursday, 06 December 2018 03:22
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