Having a car is very important to many people’s financial security. Car ownership gives people the freedom to travel where they want whenever they want to go. Even though many communities worldwide have great public transportation systems, the independence of a car is still unmatched. But you may still be asking yourself, “Should I sell my car?” And if so, there are a few things to keep in mind.
Whether You Should Sell Your Current Car
Owning a car means having expenses. But, every budget has limits. If your current car fits either of these scenarios, then you may want to consider putting the “For Sale” sign on your windshield:
Your Car Is Too Expensive
If your car is worth more than 25% of your salary, chances are you are paying tons in insurance and maintenance. The average car in the US costs a little over $1600 a year to insure with full coverage. You can obtain minimum coverage for just under $600 a year. The make and model of your car—along with your driving record—determine your insurance premiums. So, an expensive car can continue to be expensive even after paying in full.
Your Lifestyle Has Changed
Everything from new jobs to newborns can change the way you think about your transportation. As you grow, you may need to find a bigger or smaller car than what you’re in right now.
Your Car Always Needs Repairs
It’s not uncommon to sink money into an extensive car repair every once in a while. But are you regularly pulling into the mechanic to plug hoses and replace batteries? Take a look at the list of repairs you made over the past few years. Then, look up the current value of your car. If you’re starting to spend more than that value in repairs, your car may be more trouble than it’s worth.
Buying a New Car
If you can afford it, a new car has some substantial advantages:
One of the best things about buying a new car over a used one is that you get to take advantage of the new car warranty. This means that your warranty will cover the most significant expenses for the first few years of ownership, saving you a great deal with no risk to your financial situation.
You do not have to worry about how any previous owners may have treated the car with a new car. You know the car in question has not been in any accidents or had any significant bodywork done.
Car dealerships regularly offer sales with incentives for new buyers that include low-interest rates for financing and cash back rebates.
Buying a Used Car
A new car isn’t the best option for everyone. But the used car market has always had advantages for savvy buyers:
A Used Car Saves Money
On the whole, a used car costs less than a new car. A cheaper car means making small monthly payments or slightly larger payments for a shorter time. The sooner you pay off your car loan, the faster you can use those funds for other things.
Lower Insurance Costs
Car insurance can be pricey for both new and used vehicles, but used vehicles often have cheaper rates. Used cars offer a lower rate on insurance because they are typically cheaper to replace in the event of an accident.
Certified Pre-owned Cars Offer Buyer Security
The certified pre-owned (CPO) car market is a great way to get a reliable vehicle at a lower price.
A CPO car is inspected by an authorized dealer and meets specific standards. These cars are usually less than six years old and have fewer than 60,000 miles. They also come with a warranty and are eligible for special financing rates.
Getting a Car Loan: What You Need To Know
Whether it’s a used car or a new car, you’ll likely need a loan for your next set of wheels. If you’re after a new vehicle, you’ll want to know how a car loan works.
An auto loan is an installment loan from a direct lender, explicitly borrowed for buying a car. You repay an auto loan in installments—equal payments that are due monthly.
As a secured loan, your auto loan uses your car as collateral. While you’re making payments, the vehicle’s title belongs to the lender. After you pay off the loan, the lender will transfer the title to your name, which will make you the legal owner of the car.
Car Loans and Your Credit Score
Your credit score affects your auto loan options and costs like many other loans.
Your credit score is number between 300 and 850. A good score ranges from 720-850, a fair one from 620-720, and a bad one from 580-620. Credit bureaus collect data about consumers and use a credit score algorithm to determine their creditworthiness.
The riskier the borrower, the higher the interest rates for lending. Generally speaking, the higher your score, the more access you have to low-interest loans and lines of credit. If you have less-than-perfect credit, quick cash loans can provide financial relief regardless of your score.
People often think that high scores mean they can qualify for better cars or homes. However, other factors also determine your ability to repay a loan. Strong payment history and debt-to-income ratio are essential for any bad credit loan, so it doesn’t necessarily take stellar credit to get the new car you need.
How To Manage Your Monthly Car Payments
If you have paid off the auto loan for your old car, you already understand how important it is to make your loan payments. And most importantly, you avoid adding extra expenses with late fees and penalties.
Here are some of the best ways to handle your monthly car payments.
Pay on Time
Making your monthly payments on time is the best way to get your debt paid off faster.
Sticking to your payment schedule is beneficial on a few levels. For starters, making your payments on time means that you’ll finish making payments sooner or later. Additionally, regular payments can improve your credit score.
Pay More Than the Minimum Due
It may seem challenging, but even the most minor addition to your payments can go a long way.
Let’s look at a simple example. Your car loan payments are $200 every month. If you add an extra $20 to each payment, you will end up adding an extra month’s worth of payments a year!
Understand the Fine Print
Not every loan is created equal. Because of that, you must understand the terms of your loan. For example, while it may seem like a great idea to finish paying your loan early, the lender could hit you with financial penalties.
Precomputed vs. Simple Interest
The benefit to early repayment comes down to the type of interest that you have.
When a loan has precomputed interest, the lender adds a fixed amount at the beginning of the loan agreement. Like sales tax on a retail item, precomputed interest is a flat cost the borrower must pay. Since the cost is unavoidable in your installment payments, there is no benefit to paying the loan earlier than the agreement. On the other hand, simple interest compounds the running balance of the loan. So, the faster you pay it off, the more money you save on interest in the long run.
Refinance Your Loan
In refinancing, your lender creates a new loan for you that pays off your original loan. The new loan has lower interest rates that will be more manageable for you and your budget.
Pros and Cons of Loan Refinancing
Your car loan will have lower monthly payments with a lower interest rate. The savings can be reallocated to other areas of your budget or set aside to start building an emergency fund for car repairs and maintenance.
While refinancing reduces your monthly payment, it does not reduce your principal balance—that is, you will still owe the principal balance. Lower payments will mean that it will take you longer to pay the debt, resulting in you paying more interest. However, the immediate benefit to your budget may make the long-term added cost of refinancing the best choice for you.
So, should you sell your car or keep it? The answer depends on a lot of factors. Not only do you need to consider your current financial situation, but you also have to consider how a big purchase can affect your long-term plans. Whether you’re buying or selling a car, make every effort to know the car’s value and the benefit it can bring to your life.