No matter what way you look at it, cars are expensive. In fact, aside from the roofs over our heads, they’re the priciest expense most of us make in our lives. Yet, if we want a vehicle which is halfway reliable, we have to fork out.
Of course, most of us don’t have that kind of money in the bank. So, as we get mortgages for our house, many of us opt for financial assistance when it comes to our vehicles. Car financing has taken the world by storm. Here, you can pay off a car, much as you would a mortgage. This is an ever-increasing trend, with a record 107 million Americans now taking this path.
And, there’s no denying car financing can be fantastic. It allows us to get the vehicles we want without having to save for years. But, as with any financing option, it isn’t without fault. But, what are the risks, and are they worth facing?
As with any financing option, the first thing to note is the interest. Yes, it’s great that you get a shining vehicle without having to save for years. But, you’ll end up paying well over the odds for that car over time, especially if you take out a long-term financial plan. So, while this option saves you in the short-term, it’ll ultimately cost an awful lot more. This becomes even more worrying when you consider interest rates are at an all-time high, having risen to 5.2% in February of this year. If that’s a cost you’re willing to pay for convenience, then carry on. But, that’s a lot of extra expenses to pile onto your plate.
The risk of accident
An accident is never a pleasant experience, emotionally or financially. But, things get worse here when financing. Obviously, you’ll need to fork out for auto repair the same as you would for any other car. And, that cost alone can get painful. But, when financing, you also face having to pay the full cost of the vehicle if the repair doesn’t do the job. Even if it does, depreciation in value could still leave you further out of pocket. And, given how much interest you’re already paying, some would argue that’s not a risk worth taking.
Then there’s the debt
And, of course, we had to mention debt. The truth is, a vehicle starts to depreciate the moment you get behind the wheel. Just driving it out of a lot takes 11% off the value. From then, your vehicle loses a further 25% of value each year. So, there’s every chance you could end up owing more for the car than you earn when selling. And, that’s a glaring issue. After all, you wouldn’t buy a house which is sure to lose value, would you? With this in mind, doesn’t saving seem like the best option here after all? If you do finance, it’s worth taking out short-term options to ensure you don’t end in the red.