Pros and Cons of Applying for a Car Loan
Car loans are without a doubt useful in times of your desperate need to
purchase a car when you may be financially restricted. However, it is only
fair that we understand both the pros and cons of taking out a car loan. It
is better to be fully equipped with the knowledge of the worst you might
face rather than be ignorant and unprepared.
The key benefit is obvious:
Payments Through Instalments are Easier
For instance, with a hire purchase agreement, you can spread the whole
amount needed to buy your car into bits of instalments over a number of
years. Although paying in cash is a good way to purchase a car (as you incur
no interest charges), not many of us can afford to do so. With a car loan,
you can pay for the vehicle you would otherwise not have the funds for.
So, the bank lends you the money, you get your dream car, you make a prompt
payment every month and everybody is happy.
Yet, there are few drawbacks here:
Ownership and Possession Rights
Ownership and possession rights are two different things. If you take up a
hire purchase agreement to finance your car, in a strict sense, you are only
“renting” the car. The true ownership of the car belongs to the bank.
Clearly, you cannot sell any part of the car or the car itself until you
have completed the whole payment.
The Right to Repossess the Car
In the event you are not able to make your monthly repayment, bear in mind
that the bank has the right to repossess your car. In such a case, you would
have to pay the full outstanding amount to claim back your car.
Should You Deal with a Registered Car Dealer, or only with the Bank?
There is no correct answer for this, except a list of things you could
expect from each source. Car dealers are usually fast in their work process
and although profit-centered, may sometimes offer promotions / discounts
that could make purchasing a car from them cheaper.
On the other hand, banks may be less convenient than the car dealers in
terms of their work processes, but going to the bank offers the opportunity
to choose a car from a variety of places.
Final Note on Car Loan Application
Don’t just settle on the first car loan deal you find. Look around, compare
and evaluate the choices you have. These car loans can differ in fee
structure and interest, and small changes in interest rates can make a huge
difference in the amount you pay over a number of years.
undo Car Loan Guides & Tips