While taking a new automobile home is an exhilarating experience, purchasing one may quickly deplete your money. It is why it is critical that you examine your alternatives for purchasing the automobile you desire. So here’s a head-to-head comparison of vehicle loans vs down payments.
Choosing a Course of Action
The first step in purchasing a car is determining your budget. While this is a very personal topic, what is important is that you manage your costs in such a manner that your budget does not disrupt your entire financial life.
If you have the ability to pay a large sum of money upfront, make that your first priority. However, if you believe that paying a large sum will be problematic, then go ahead and investigate the financing option, which can be quite useful in smoothing out your vehicle’s price, albeit with a few stipulations.
The Way of the Down Payment
Those who can afford to spend a substantial sum upfront for an automobile should always go the down payment route. Not only will this provide you with quick access to your cherished automobile with no constraints, but it will also relieve you from the inconveniences of hypothecation and resale concerns.
Even if you do not have the funds to bring home the vehicle of your dreams, it is best to save your money and go for the automobile of your dreams in a few years.
The Road to Financing
A vehicle loan is the most typical way to buy a brand new car. Automobile loans, which are available from practically all Indian banks, may deliver your dream car to your garage almost as quickly as a down payment. Car loans can make the dream of owning a car a reality for people who cannot pay the total price.
With virtually all major banks willing to finance up to 90% of a vehicle’s worth, you may save money with a car loan by paying only 10% of the vehicle’s value as a down payment. But there is a catch to this precious privilege.
While vehicle loans can help you transform your aspirations into reality, the magic of finance comes with a responsibility to repay, and that obligation is accompanied by interest. It implies that you will not only pay back the money, but you will also pay interest on top of it.
Also Read, Car Subscription vs Car Buying | Everything you Need to Know
To help you visualise the issue, here’s what it will look like: Consider that you need to bring home a vehicle with an on-road value of 12 lakhs, and you decide to take out a car loan that covers 90% of the vehicle’s cost with an interest rate of 8%. You would have to pay 1.2 lakhs as a down payment and Rs in this situation. 10.8 lakh as a loan amount. If you choose to stretch this loan over 7 years, you might wind up paying as much as 3.15 lakhs in interest on top of the principle!
Another stumbling block in obtaining a car loan is the exorbitant processing costs, the trouble of documentation, and the fact that your cherished vehicle is hypothecated in favour of your bank if you are unable to pay. While this may not be a problem if you pay on time, it is a stumbling block when it comes to reselling the vehicle.
The True Cost of Obtaining a Car Loan
All major banks in India provide auto loans, and because the loan is secured by the car, the interest rate given is lower than that of unsecured loans such as personal loans. However, there are additional charges, however small, that add up to raise the overall price.
There are costs such as document charges, processing fees, and GST on those processing fees, among other things.
Buying a Car with a Loan: How Much More Money Will You Spend?
You must first plan for a down payment before applying for a car loan. Most banks will lend you between 80% and 90% of the car’s on-road price. This implies you’ll have to pay 10% to 20% of the car’s price out of your own money when you buy it. So, if you take out a loan for a car that costs Rs. 12 lakh on the road, you will have to pay a down payment ranging from Rs. 1.2 lakh to Rs. 2.4 lakh.
As previously stated, the interest on an Automobile Loan is the principal cost that you suffer in addition to the cost of the car itself. The total interest amount you will pay is determined by the loan amount, interest rate, and loan duration. Most banks now provide auto loans with terms of up to 5 years, although other lenders offer terms of up to 7 years.
In conclusion
So this was all about paying cash vs getting a car loan. So, if you’re thinking of buying a new automobile, see if you can pay for it all at once. If not, consider the true “cost” of obtaining a car loan. Manage your loan term in such a manner that you can make regular payments without disrupting all of your other costs. Be cautious in your preparation since a vehicle loan can have a negative impact on your crucial credit score if not handled properly.
