Top 5 Benefits of Financing a Car
You may not be able to afford the full cost of the car upfront, but that doesn’t mean that you can’t buy it at all!
There are many potential benefits of financing a car. You can get the car you want and drive it today. This is good for people who need a new vehicle quickly.
With auto financing, you can get approved for a loan and drive your desired car in minutes. In this blog, we will show you the benefits of financing a car and if you are looking to finance a car in Surrey, Vancouver BC then you can visit u1.
1. Become Owner of Car without Paying in Full
The first benefit of financing a car is that you can become in possession of the vehicle without paying the full value of the car.
The financer will provide your terms and conditions of the loan before pre-approval of the loan. By agreeing to these terms and conditions of lenders, you agree to pay monthly installments for a specific period of time, and also you have to pay the interest on the loan as well.
Auto finance dealerships offer zero percent finance options also and you can become the owner of the car without paying a single penny upfront.
It is advisable to pay at least 20% of the total car value upfront as a down payment. This not only ensures the lender that you are a responsible person but also helps you in negotiating the interest rate charged on your loan. Even a 0.5% decrease in car loan interest rate helps you in saving a couple of dollars in the long run.
2. Flexible EMIs
Since you have agreed to monthly payments or EMIs of car loans, some lenders also provide you with flexible options of paying them such that they don’t become a burden on your budget.
You can increase the term of the loan if you think the monthly payments are high. In case, if you are not able to pay monthly payments in a particular month you can demand an extension period from the lender without paying any extra fees.
3. Builds Credit Score
As we know that credit score is what a lender will look into when he approves your car loan. If you have a good credit score then your interest rate will be lower and if your credit score is low, then the interest rate will be high. A car loan will be a good chance to improve your credit score. If you pay your monthly payments on time, it will increase your CIBIL score. According to afford anything, the monthly payment history contributes to 35% of your overall FICO score.
4. Tax Benefits
You can also get tax benefits on financing your car if your vehicle is approved under CRA. For salaried employees, if you use your car for business purposes then the vehicle expenses allowed by CRA can be used as tax deductibles.
Here are some of the conditions that need to meet to get tax benefits for an employed person –
- You work at a different location from that of your employer.
- Your employer should not be paying your motor vehicle expenses.
- Your employer signed CRA – T2200 Declaration of Conditions of Employment
You can find more information regarding tax benefits on mile IQ blog post.
5. No collateral Needed
The main benefit of a car loan is that you do not need any collateral, unlike other loans. Whether you are getting a loan from a bank, credit union, or used car dealerships, you do not have to offer any kind of collateral upfront.
In-car loans, the car that you purchased acts as collateral, and in case you failed to pay the payments, the lender can recover his amount by selling your car.
Which is better: paying cash or financing a car?
To better answer this question, let’s look at the interest rate charged on your car loan and the interest rates offered by banks.
If the car loan interest rate is more than the bank then it is better to pay it in cash. If banks are offering more interest rates than car loans (which is no longer possible) then you should finance your car because your money is yielding more interest in the bank and the interest can be used to give monthly payments.
As the rates of banks change with the economic cycle. So the answer to this question depends on the interest rates and before applying for a loan, always educate yourself with the current interest rates in the market.
There are many benefits of leasing or financing a car rather than buying one outright. Some of these include low monthly payments, flexible terms, and the ability to buy a new car at the end of the term.
Some will argue that owning a vehicle is better because you can sell it back at any time. However, this does not take into account the fact that financing a car is a more affordable option for those who don’t have large amounts of savings or credit card debt.
Is it better to lease or finance a vehicle?
Leasing a car allows people to drive it for a set period of time and then return it to the dealership. Financing refers to taking out a loan in order to pay for this car.
If you want to own a vehicle then financing is the best option than leasing. You can modify your car as per your requirements and there are no mileage limits. Another benefit of financing over leasing is that you can sell your car at any time and pay off the loan amount.
The biggest advantage of financing a car is that you will not be stuck in a lease agreement and end up paying for an expensive out-of-pocket repair expense if something goes wrong with your vehicle.
Financing is also beneficial because the interest rates tend to be much lower than those for leases and it can save you thousands of dollars over the life of your loan.
I will not say one is better than another because they have their own pros and cons.
On the other hand, some of the biggest advantages of leasing instead of financing are:
a. No need to pay down the car in advance, so there is no risk you cannot afford it
b. Lease companies offer flexible terms, so you can take advantage of them
The Bottom Line
In conclusion, a car loan is a good financial decision because it can help you save money with low monthly payments. Not only this, but it can also help you avoid the high-interest rates that other loans have.