- Emma Anderson
- February 24, 2021
Often people prefer buying a car with a single cash purchase as opposed to financing. According to a source, there was a four per cent decline in car financing in 2018 compared to the previous year.
However, financing a car comes with a varied number of advantages as compared to cash purchase. For example, the former takes only a portion of the savings while the rest still generates interest.
On the other hand, cash purchase requires a lump sum payment that drastically diminishes the account balance. Restoring the amount becomes much more complicated and managing expenses with increasing car maintenance, service, repairs, etc., becomes challenging.
5 Advantages Offered By Car Financing Over a Cash Purchase
● Safeguards the Investments
Often every individual has made an investment in a savings account, shares, stocks, etc. However, taking out the amount might levy a few charges, except for a savings account.
But anyone with a savings account would receive diminished interest rates until the balance gets restored. Taking a car with guaranteed car finance for bad credit or other loans safeguards these investments.
Also, a person has to make a lower down payment from the savings account. Therefore, restoring the balance to receive the initial interest rate becomes much more convenient with a regular salary.
● Improves Credit Score
Dealers often hesitate to provide the best deals to bad creditors. At times, they might cover hard and soft credit checks to understand the buyer’s repayment capacity while financing a vehicle.
A soft check doesn’t hamper the credit rating; however, a hard review diminishes it. While purchasing a car through cash, they might not require a check. However, buying a vehicle through cash purchase wouldn’t necessarily improve the rating.
On the other hand, dealers and banks also offer car loans for bad credit. These can improve the credit rating with regular repayments; open doors to new loans, make existing lenders offer better terms and conditions, etc.
● Only Requires a Small Deposit
Car financing requires a small initial deposit besides regular repayments from the borrower. On the other hand, buying a car in cash needs lump sum payment. Therefore, the buyer receives a significant monetary impact in the latter as compared to the former.
Moreover, a lower deposit can open choices for buying a higher car model or a better quality car. The same option doesn’t exist with cash purchase, as the amount of savings remain limited with each person due to ongoing expenses.
Additionally, it helps to avoid second-hand or used vehicles. It means the buyer can purchase a new car without thinking twice about the impact on savings.
● Increases Chances of Trading with the Manufacturer
Financing a car from the manufacturer or third-party shifts many responsibilities like regular servicing, maintenance, repairs, etc., towards the company. Therefore, the financier assures all of these aspects by informing the car owner before the due date.
As a result, financed cars function much better compared to self-purchase vehicles. Additionally, the manufacturer receives notifications during service, maintenance, or repairs. The paperwork helps to trade the vehicle for an improved version or another quickly and without hesitation.
Moreover, the car owner can even show the vehicle paperwork to other manufacturers to avail the best deals or offers in the market. However, Hire Purchase or HP cars cannot sell without settling the finance with the legal owner.
● Manageable Repayments
After submitting the initial deposit with the dealer, the owner can take the car home and make regular repayments. The denomination of the amount doesn’t affect the owner’s savings account as it receives continuous income.
Moreover, the monthly repayment amount hardly affects the monthly expenses of the household. Car financing can range between £90 and £500. However, the final balloon payment would remain quite heavy.
There are many options for financing a car, such as a hire purchase, personal contract purchase, personal hire contract, credit card, and peer-to-peer loans.
● Other Benefits
Just like promotional credit cards that come with zero interest rates for a specific period, manufacturers regularly provide zero APR finance. However, the difference between them is that the former expires after duration, whereas car financing continues with negligible APR.
Financing a vehicle proves very useful when you require emergency funds. For example, if there is a health issue with a family member and recently bought a car in cash, you might need a loan to cover the costs.
On the other hand, car financing saves emergency funds in the savings account and avoids taking additional loans. Additionally, if you have kept the amount in a savings account, you would receive interest.
The added APR in the savings account helps recover repayments faster than usual or manage occasional events. Moreover, purchasing a vehicle restricts personal interest like attending outdoor parties, travelling, joining a gym, etc., due to the ongoing household expenses.
Additionally, the restrictions last until a sufficient amount of savings get recovered into the account for an emergency, hobbies, necessary costs, etc. According to a source, a vehicle depreciates fifty to sixty per cent during the initial three years.
Therefore, buying a car with a cash purchase would make it more difficult to resell if it covered an annual mileage of 12,000 miles. Consequently, you might lose money instead of raising it.
Before proceeding with a higher car model or financing an expensive vehicle, buyers much review the ownership costs. The car comparison websites can help to find the best financing options and similar cars in the range.
Additionally, they can help understand the depreciation, maintenance and service costs, regular driving expenses, etc. These would help during car financing and enable in making better ownership decisions.
Conclusively, car financing offers many significant benefits over cash purchase. The zero APR offers introduced by manufacturers add more value to it.