There are two payment options available when purchasing a car: paying for the entire vehicle upfront or financing the vehicle over time. Though purchasing a vehicle upfront is easily the best option, it’s cheaper and you won’t have the burden of a monthly payment on your hands, not everyone can afford it. If you’re on a budget, financing the car may be your best option.
By financing your car, the overall price may be more expensive since you will have to pay interest on your loan. However, you can find a loan that gives you manageable monthly installments to pay, instead of having to place a big bulk of money down up front.
While choosing whether to purchase your car upfront or finance it, consider all the pros and cons of each decision. Ask yourself: Am I able to afford a monthly payment? How much will the monthly payment be? How long will my loan term be? How much interest will accrue over the term of the loan?
Also make sure that you understand the following things before making your decision: The finance charge (what the car will cost you), the amount of monthly payments (a loan calculator can help you in this area), the annual percentage rate (APR, which is a measure of the cost of credit), the exact price you are financing your car for, and the sum of your monthly payments (including your down payment) which will be your total price.
The APR is generally higher and the loan periods shorter on a used car loan, as opposed to a new car loan. It can be risky getting a car with a high APR, especially if you decide to sell a car before the loan is completely paid off, as you may make little to no profit if the rate of sale is less than the amount you have to finish paying. Also, if you get in a car accident or in the event of repossession, you may get stuck paying off a car that you are no longer in possession of in order to finish paying off the auto loan.
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