Owning a car is no more a luxury. Today, it is a necessity. Plus, it not only comes with a cost but with recurring expenses such as fuel, maintenance, accessories, and more. While this is true whether you buy a new car or a used one, the latter at least facilitates affordability and savings. So, the next obvious question is—should you pay cash or go for a
used car loan to save more on the purchase?
If you have enough disposable income, you can certainly opt to buy a used car in cash so that you are not in debt. However, if it means dipping into your savings then an outright cash purchase may not be a wise decision.
Let us take a look at the pros and cons of both—buying a used car in cash and that on a loan.
Also Read: How to arrange a loan for a pre-owned car? Advantages of Buying in Cash
If you are wondering, "
should I buy a used car in cash because I have the money?”, then here are the pros of it:
- The car immediately becomes yours
- You do not have to worry about monthly installments or being in debt
- You pay the actual amount and no interest
Disadvantages of Buying in Cash
However, paying cash to
purchase a used car, even if the price is much lower than that of a new car, can have these drawbacks:
- You may be left with little or no savings for your retirement, children’s education, their marriage or any emergencies
- In case of an unfortunate loss of employment, you could be staring at a major financial crisis
- You could have probably put your money to better use by investing it where you could have got a better return
- You lose the chance to build your credit history
Now, let us look at the pros and cons of opting for a
used-car loan.
Also Read: Getting The Best Interest Rate On A Used Car Loan-Everything You Need To Know Advantages of Buying a Used Car on Loan
Many financial institutions offer car loan for second-hand cars. Here are the reasons for the increasing popularity of used-car loans:
- You can keep your savings intact and keep your money for what you had planned
- You can get flexible terms of repayment and tenure
- You can build your credit history which can be an advantage in the future
- The cash you have in hand can be invested in avenues where you get good returns
- You have liquidity in case of emergencies, loss of employment, and other crisis
- The loan amount can go up to Rs 50 lakhs, which means you can go for a high-value car that may not be bought otherwise
- You can complete the entire process online with minimal paperwork
- Approvals are quick and easy
Disadvantages of Buying a Used Car on Loan
As with everything else, there is a downside to getting a loan to buy a used car. Some disadvantages are:
- Used-car loan rate of interest may be slightly higher than that of a new car loan
- You have to pay your monthly interests on time
- You pay a slightly higher price as you have to pay interest on the loan
Also Read: Points to Consider Before Taking a Used Car Loan
To Conclude
Making cash purchases may give you a feeling of complete ownership, but one always thinks twice before handing over a big amount for a purchase. We are living in uncertain, tumultuous times with the pandemic showing no signs of abating soon. In such times, it is recommended to always have a minimum liquidity of three months, which means enough cash in your hand to meet expenses for three months. There are many uncertainties regarding when the economy will open up fully and businesses will function as before. Therefore, it is judicious to go for a car loan for used cars rather than buy a used car in cash.
