Should I Take on Auto Loans or Pay Cash
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by: laurawilder
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The most important thing you should do to prepare to purchase a new or used car is examine your finances. Whether you plan on applying for auto loans or paying with cold hard cash, you need to know how much car your budget can handle. There are advantages and disadvantages to both paying cash and financing, so you will need to determine what is best for your financial situation.
Paying cash for your new car, rather than relying on auto loans, can be a very smart move, particularly if you have saved funds for the purchase. Paying cash up front means you will have zero financing costs, zero monthly payments, zero credit risk, and no concerns about owing more than the car is worth as it depreciates. You also will not buy more car than you can afford. The car will be yours. The title will be yours.
When you examine your budget before you purchase the car, take note of what you will have to give up to fork over that cash. Maybe you need to pay for new storm windows, so should buy a used car. Or should you forgo the car for a few more years until your kids are out of college? Most people do not set aside "car money" in a jar on top of the fridge for years to save up. They will likely take money out of an investment fund, which may incur some fees. Another consideration is simply that car dealerships are giving out some amazingly low rates on auto loans right now, which might mean your cash would pay better dividends invested elsewhere. The bottom line, though, is that cash is cash. You will not take on debt to pay for that car and it will be yours the moment you drive it off the lot.
If you are looking at auto loans, the vital first step is identifying you financial ceiling for monthly payments. The easiest way to determine that is to calculate a budget based on your monthly spending. Begin with what you bring home after taxes each month. Then sum up all your mandatory expenses, such as mortgage payments or rent, student loan payments, utility bills and grocery bills. Deduct those mandatory expenses from your income. Deduct your optional expenses next (pizza money, pedicures, movie tickets, golf membership, etc.) It is wise to also subtract what you currently or would like to save or invest each month. Whatever you have left is what your budget can handle for a car payment. Do not forget that you are responsible for additional expenses such as insurance, licensing, gas, maintenance, parking fees, registration and a down payment to kick the loan off. You can role play with a cheaper or more expensive car and see what you are comfortable with. Thoroughly outline all the costs before you take on any auto loans.
Know what you can afford, regardless if you plan to take on auto loans or pay with cash. Stay firm on that limit. Put it on a yellow sticky and put it in your wallet. That guy on the car lot will always try to sell you a fancier model than you planned on. You are responsible for making those payments, no matter how great the deal may seem at the time. Be strong and protect your finances by knowing what you can and want to spend.
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Read on the topic of discount auto insurance, read www.insurancetree.com/auto-insurance.
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