Pros and Cons of a Car Loan

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A new purchase is always exciting, be it a home or a car. However, ensuring you have a seamless experience while making your purchase is equally important. Selecting a good car is only the first step, but completing all financial tasks related to the same will ensure you drive off in your new car without any trouble.

If you have been contemplating on buying a brand new car but are discouraged by the burden of making a large payment, considering your current financial status may help choose between paying in cash and opting for a loan. Often, arranging for a large amount of cash may not be within your means, and in such a case, opting for car finance may be the best thing to do.

When you purchase a car from a dealer, the dealer may also provide the option of financing. Although, opting to finance your car from such dealers may not guarantee you security. Therefore, choosing private financing could be more beneficial. You are more likely to have a hassle-free experience if you choose to finance your car through a credit union or a bank.

Here are the pros of financing a car that will help you decide whether it is the right choice for you:

  • Helps manage the budget: The first and foremost advantage of a loan is that it lets you purchase a car without having to burn a hole in your pocket.
  • Fast loan approval: Getting a loan sanctioned is not a tedious process anymore. After all the necessary documents have been furnished, you can expect the loan disbursal in three to six days.
  • Option of EMI: Choosing a loan lets you repay the amount in Equated Monthly Installments (EMIS), thereby reducing the pressure of having to pay a huge amount in one go. The financer sanctioning the loan strategically spaces out the EMI and, the duration is increased depending on your ability to pay off the loan.
  • Choice of variable and fixed interest rates: Furthermore, you may conveniently decide between variable and fixed interest rates. In the case of a variable interest rate, the interest rate varies according to the changes in the market. However, a fixed interest rate remains the same for the entire tenure of the loan.
  • Tax deduction: If your new car will be used for business purpose, then you may qualify for tax deduction under the Income Tax Act.
  • Advantage of employing the residual value: The residual value may also be attached which could contribute towards decreasing the number of installments per month.

Consider the following cons, so that you are well informed prior to your car purchase:

  • High interest rates: High car loan interest rates in a loan could come in the way of gaining ownership of your dream car. However, financers now offer them at competitive prices and you could compare rates before your purchase.
  • Risk of financer repossessing car: Inability to pay at regular intervals puts you at the risk of losing ownership of your new car. So, ensure you keep a track of your repayment tenure and avoid a bad credit history.

Considering the flexibility and convenience of car loans, it is wise to choose this option when buying a new car. So, now you won’t have to delay the process of bringing home your new car. Being aware of the loan tenure and inspecting interest rates will help you avoid the risks, thereby facilitating a smooth buying experience.

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