Paying for a New Car in Personal Finance in Your 20s and 30s

Ready to own a car in university? Do you want a new one or a used one?
How long would you like to use it? Three or five years?
When you’re ready to buy a new car, you have three methods of paying for it: cash, loan, or lease. The thing is if you pay for a new car in cash you save yourself a lot of money in interest fees, it would be wise however to pay off any outstanding debts on your credit card first. This is to make sure that you will not be overloaded with bills.

These days one can buy a car through paying installments or financing through the bank. However once you miss one payment the car can be repossessed and all that money is lost. These days –after the credit crunch – loans are only given out to people who have Class-A star credit ratings.

Banks Loans
Bank loans are a favorite and as a result they have lowered their interest rates marginally to attract the students. One does have to seriously consider whether or not they will be able to make the payments.
If it is a new car, can you afford the depreciation value of the car? Cars loose the most value within the first three years. Will you trade in to an older or newer car?
It is therefore prudent for a college student to buy an older car and then trade it in for a newer one down the road.

There is also the offer of leasing.
Leasing has two main benefits:

  1. You can drive a newer vehicle that is always under warranty and seldom needs more than routine maintenance.
  2. You can often get a larger, more luxurious, better-equipped car. Auto dealerships prefer leasing because the customer-loyalty rate is three times stronger as it is with buyers.

Things to remember

  • In addition to the monthly payments to make on the car, there is the insurance cover. What kind of insurance cover to take?
  • There is the monthly fuel cost to think about.
  • The cost of regular service to the car.
  • Beware of hidden costs such as ‘balloon loans’. This is a lump sum that is required at the end of the loan period. This is good for the lender but not necessarily the owner of the car.
  • Ask about the title of the car. Who will have this important document?

If it is difficult to get a car loan on your own, you can ask a parent or significant other to cosign on the loan for the car.
Due to many customers defaulting on their car and credit card payments, there have been cases whereby people have been denied mortgage payments.
It is always better to be safe rather than sorry, so it wouldn’t hurt to have the documents that are drawn up given a once over by a lawyer –  there are a lot of unscrupulous dealers out there.