When you decide that you really need a car, the first big question is should you go for a new car or a second hand car? If the car is a very expensive proposition, you decide to settle for a second hand one. Now the next question is whether you should make cash payment or go for a loan? For this, you need to look out for a few signs. These signs will indicate whether you should avail a loan for buying a used car.
- Have Surplus Funds But the Loan Interest Is Low
If you have surplus cash, you can very well pay for the car in cash. In such a scenario, check out the rate of interest if you do take a loan. If there is an investment that can get you good returns at a rate higher than the interest amount on the loan, it makes sense to invest that surplus money and take a loan for your car. This way, you will be able to make some money while enjoying the car on EMIs. But, this should be done only if the used car loan interest rate is lower than the returns on this investment
- Have Just About Sufficient Funds for a Car
If you have just enough cash, consider your other expenses and your household budget. See if you would have anything left for your other expenses after paying up for the car. If not, it is better to go for a loan. This way, you can pay for the car in instalments while being able to manage all your other household expenses as well.
- You Do Not Have Sufficient Funds for a Car
If you really need a car but do not have sufficient funds, you need to try and understand the mechanics of taking a loan for buying the car. This is because you do not really have an option but to go for a car loan. Make sure you have the ability to pay the EMIs or you will end up losing your car to the lender. You will lose all the money that you would have paid and the car as well.
- You Dream of a Bigger Car
If you have sufficient funds for a small car but you dream of owning a big one, it is possible. If you have a decent credit score, you can choose to take a loan and go for a better car than what would be possible with your own funds. You could probably invest the extra money and get better returns as mentioned in point 1.
- You Are Eligible for a Personal Loan
You do not necessarily have to take a car loan. You can also choose to take a personal loan and finance the car with part of it. You can invest the balance in a profitable outlet and proceed to pay the instalments on the personal loan. In this case, you would have full possession of the car and the benefit of instalments as well. You can do this if you are getting the personal loan at a low rate of interest.
There are pros and cons of taking a loan. Weigh the situation carefully before you go for a loan.