What are the Alternatives to a Car Loan?
There are many people that will find that when they need to buy a car they will consider getting a loan to pay for it. Although car loans can be extremely useful, it is worth considering alternatives before using one. There might be some alternatives which are cheaper or better and unless you have considered them and thought about what will work best for you, you will never know whether you have made the right decision.
The cheapest way to get the money for a car is to use your savings. This might sound odd because most people earn some interest on their savings but this is usually a very small amount. The cost of loans tends to be much higher than any interest that can be earned on savings. There may be a few exceptions if you have a savings account that pays a high rate of interest, such as a fixed rate bond or notice account compared to a very cheap loan. It is worth checking, but normally loans are dearer.
People can find it hard to part with their savings though. Sometimes they would rather borrow money than use savings even though it costs more money. This could be for a number of reasons. It might be because they are saving up for something specific and they do not want to lose that money as they will have to start saving up all over again. It might be that they worked really hard to save the money that they saved and they do not want to forgo those sacrifices to buy a car which they could get a loan with no credit check for. It could be that they like to have some savings to fall back on in emergencies. However, these are not really logical reasons and it is wise to think about the fact that using savings will be cheaper. It would be better to use these and then set up a direct debit to pay the money that you would have had to use to repay the loan, into your savings account. Then you will replenish your savings but if you struggle at all financially you can cancel that direct debit or transfer some of the money out of the savings account.
It can even be wise to start saving for a car as soon as you buy one. Eventually you will need or want to replace that car and the sooner you start saving up the better. If you are repaying a loan on it, then you may not be able to save much, but even a little bit will help and you can increase the amount that you are saving once the loan is repaid.
Getting a personal loan could be a cheaper alternative to a car loan in some cases. It is worth comparing the cost of it as you may find that it will be a good alternative. You should be able to borrow the amount that you need as well. It is worth making sure that you look at the repayments though, as well as the cost. Think about how much you can afford to repay on a loan each month and make sure that you will be able to afford this, whichever type of loan you decide to go with. Depending on how much the car is, you may find that others orts of loan may also be useful for buying it with. You may be able to use a credit card or overdraft if it is a really cheap car, but these tend to be more expensive than car loans.
If you have a mortgage and the value of your home has gone up since you took it out, you may be able to borrow more money on it. This can seem like a really good idea because mortgage interest rates tend to be lower than those for car and personal loans. However, a mortgage is repaid over a very long period of time. If you are at the beginning of that period then you could end up paying a lot of interest on that loan as you will be paying it for so long. Try to calculate the costs so that you can compare the different loan types. You may also find that if you increase your mortgage burden then there is a bigger chance that you might miss a repayment at some stage. This is risky as if you miss too many repayments then you might find that your home is repossessed. You do not want to end up homeless just because you want a cheap loan to buy a car. It would be better to take the car loan, using the car as collateral and risk having the car repossessed than risk losing your home.