Car Loan

There are various pros and cons when it comes to taking out a loan when you have bad credit. But if used correctly and responsibly, a bad credit loan can have a real positive effect on your financial health.

• No Need For An Old Car

  A car loan gives you the power to purchase a newer or higher spec vehicle than you could afford by paying cash upfront. Many people prefer to pay for their car by utilising a loan, so they don’t have to compromise on an older car or a car with a large amount of miles on the clock.  A car loan spreads out the expense of the car over time through monthly instalments, rather than requiring a large upfront payment. This makes the purchase more affordable in the short-term and can also help you avoid draining your savings.

• Split The Cost Into Manageable Payments

  A car loan is generally considered better than leasing for several reasons, especially if you are looking to build equity and own an asset. With a car loan, you are borrowing money to purchase a car and then making monthly payments to pay off the loan. As you repay the principal, you build equity in the vehicle, which you can keep for as long as you like. This means you have the freedom to treat the car as you wish, without worrying about mileage or wear and tear restrictions that come with leasing.
  

• Save Money In The Long Run

  Another significant advantage of a car loan is the potential cost savings in the long run. While monthly payments for a car loan may be higher compared to leasing, the overall financial benefits of owning a vehicle outright can outweigh the initial costs. With a car loan, you avoid the continuous cycle of lease payments and the need to secure a new vehicle every few years, which can add up over time.

• Less Restrictions

  Taking advantage of a car loan also allows you to customise your vehicle as you see fit. With a leased vehicle, there may be restrictions on modifications, which can limit your ability to personalise the car. However, by using a car loan to pay for your car, no legal customisation is off limits.

While car finance can offer numerous advantages, such as the ability to spread the cost of a vehicle purchase and potentially access a newer car, there are also some potential downsides to consider:

• Long Term Conracts

  One of the primary drawbacks of car finance is the long-term commitment it often entails. Many finance agreements, such as hire purchase (HP) or personal contract purchase (PCP), can last several years, locking you into the same vehicle for an extended period. This means you may end up paying more for the car over the long run compared to buying it outright.

• Restrictive Mileage Allowances

  The financing terms can sometimes be restrictive. Depending on the type of agreement, there may be limitations on the number of miles you can drive or the condition the car must be returned in at the end of the contract. Exceeding these limits can result in costly penalties, which can add to the overall expense of the vehicle

• Large Final Payment

  To own the car outright at the end of your finance agreement, you also often have to pay a lump sum, even after paying monthly payments with interest on top. However with a short-term loan, you can own the car right away if you purchase a car outright with the money generated by your loan – you just have to make the monthly payments.

• Potentially Damage Your Credit Score:

  Another potential downside to consider is the impact on your credit score. Whilst car finance can help improve your credit if you make payments on time, missed or late payments can have a negative effect and make it more difficult to qualify for other loans or credit in the future. However, if you find a monthly payment that works for you and maintain the payments every month, you are much more likely to improve your credit score.