When you want to buy a car, you need to decide: new or used? If new, get a loan to afford it. Or used with cash? This choice changes your money situation a lot. New cars need loans that cost extra over time. But they stay reliable for years first. Used cars are cheaper but break more often. So weigh if it's worth paying for new features or saving cash with an old car. Your pick impacts how money lasts in the coming years.
Taking out a loan to buy a new car has some nice perks.
But there are downsides to a new car loan:
So, with a new car loan, you get reliability and flashy features. The car drops in value, but your loan amount does not. The warranty saves you repair costs during that time.
Paying cash for a used car has a lot going for it. The main reasons are:
Also, since used cars cost much less, it takes fewer years of use before you save money versus a new car loan.
But there are a few key things to note with used cars:
A used car bought with cash allows you to avoid payments. But you trade off some predictability and features by going the used route. Test driving the car thoroughly and having a mechanic check it is important. But buying used with cash can work out well overall in many cases.
When considering cost, new car loans take a big toll over time. Say you borrow €30,000 for 5 years at 5% interest. That means:
Meanwhile, if you pay €10,000 cash for a used car, you may spend €2,000 over 5 years on repairs. That gives a total cost of €12,000.
In this example, the used car saves €25,000 even with repairs factored in! But used cars can vary in reliability. And if you drive a new car for 10+ years, it looks better since you spread the €7,000 interest over more time.
Let’s say you keep that new car for 15 years instead. Now your €30k loan costs €19,000 total with interest. That closes the gap between a used car.
Loans for new cars often cost way more in the long run. But if you keep the car and benefit from the warranty, it can balance out later on. Do the maths to see what fits your situation best!
Deciding between used or new comes down to your money situation. Look closely at these key aspects:
You also want to avoid taking on too much debt. This is where a car loan on an instant approval product can offer pre-approval with estimated terms. But make sure your total debt payments stay under 40% of gross monthly income.
Don't drain savings either - keep emergency cash on hand. And if buying used, have some repair fund savings as a backup plan.
Overall, go with the car purchase you can truly afford long-term without overextending. Take a conservative approach and leave breathing room. If you land on used, getting a thorough inspection helps avoid surprise repair bills down the road.
Depreciation is a crucial cost factor with cars. This is the drop in value over time as the car ages. All cars lose value, but the speed of loss depends on whether it's new or used.
For brand-new cars, the value dips fastest in the first 1-3 years. The average is 30% in year one!
This matters when you go to sell or trade in your car. Say you bought new and want to sell after 5 years:
With a used car bought with cash, you can likely sell it for close to your purchase amount after 5 years.
So, new cars depreciate quicker, leaving negative equity issues on loans. Used cars hold value fairly steady if kept in good shape. Factor this into the long-term costs when deciding.
Beyond standard car loans, also look into these options that may offer better rates:
Compare all loan quotes you get. Ask about:
See if the family might also give money to boost your down payment. That lowers the loan amount needed.
Getting pre-approved first also helps you know what monthly payment you can manage. Just be sure to avoid very long 6-7-year loans that cost way more overall. Lining up flexible financing beforehand can assist in negotiating a better car price as well.
Deciding whether new or used depends on your budget, needs, and how long you will keep the car. Loans cost more over time but offer predictability. Paying cash saves money if you can handle repairs.
Look realistically at what fits best long-term without overextending. Stay within your means and leave financial breathing room. Weigh if reliability, warranty perks, or current savings matter most. Make an informed choice that keeps your finances healthy while still getting the features and style you want.
