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If you have ever bought a car before, you have probably debated whether to buy a new car or a used one. While it may sound enticing to buy a brand-new car, sometimes it may make more sense financially to buy a used one. However, buying a second-hand car is not easy. Due diligence is required to ensure that you get the value for your money.
Second-hand cars are economical but they can often end up costing you more than a new one. You need to take into account maintenance, fuel economy, repairs, not to mention the monthly EMI if you opt for a used car loan.
Considering the high rate of depreciation in new cars, buying a used car can be a smart decision provided you do your homework well. Therefore, before you head to your nearest dealership, there are certain questions you should be able to answer.
A fundamental question that arises is how much should you spend on a second-hand car. Some say it should be 10% of your total income, few feel it should not exceed 20% while there are others that advocate the 20/4/10 rule. According to this rule, pay at least 20% of the cost as down payment, do not finance the car for more than four years, and the total monthly expenses on the vehicle should not exceed 10% of gross income.
The total amount you end up spending depends on a variety of factors including some that are mentioned below.
You can also opt for a loan insurance to protect your family against the burden of the loan in case of an unfortunate event.
The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.
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