When buying a car, you will need to know how you will pay for it. Here are 5 finance options that you can use to buy your next new or pre-owned car.
Pay for Your Car with Cash
The best way to buy anything including a car is with cash. However, the majority of us can’t pay such big sums of money in cash, which means we need to take loans to pay for big purchases.
The Traditional Way of Paying for a Car
The common financing option for a car is monthly instalments. Each month, you will need to pay a sum of money for a set period of time.
The amount that you pay each month will depend on the price of the car. You can bring down the monthly instalments by putting in a deposit. Don’t forget that loans have interest, but by having a shorter loan period, you pay less interest.
You will own the car as soon as you make your last payment.
With monthly instalments, it is best to put down a deposit and take a short term.
Taking on a Balloon Payment
A balloon payment is not always advisable unless you really have to take one because there is a risk involved.
A balloon payment finance option lets you lower the monthly instalments by having a portion of the purchase price set aside until the end of the term.
At the end of the term, you will then need to pay a chunk of money to own the car.
The reason that a balloon payment option is risky, is because of this sum of money you still owe at the end of the term. Throughout the term of your loan, you will need to pay the monthly instalments and save money. You will have to be financially discipled.
Why Buy if You Can Lease
An alternative to buying a car is to lease one. This finance option means you won’t own a car, but you can drive a car as if it was yours.
Car leases have certain restrictions attached like you can only do so many KMs etc, but the payments are usually affordable.
At the end of your lease agreement, just return the car.
Guaranteed Future Value
A popular car finance option is Guaranteed Future Value or GFV. The future value of your car is determined, which is based on the condition and mileage of the car.
At the end of the finance agreement, you will know what your car is worth. If you want to own the car, you will just need to settle the amount. Otherwise, you can take a new GFV agreement or return the vehicle without any financial obligations.
These are the most popular financial agreements. Make sure you read your terms and know exactly what you will be paying each month.