How to Finance a New Car?

Of all the fixed asset purchases an average working class person has to make, the new car is probably the scariest (second to property purchase of course). A new car doesn’t just require heavy investment but agonizing decisions over the multitude of choices available because unlike a fridge or a TV the car reflects your personal style. And once you are finally able to choose one that you can live with it might be just a little bit out of reach.


Luckily, dishing out hard cash isn’t the only way to get a new car these days. Car loans are readily available with terms and conditions (mostly) adjustable to suit your needs and they are also easier to get approval for than standard bank loans (a poor credit history doesn’t hurt as much when applying for a car loan).

Here’s what’s in your control:

  1. How much do you want to borrow? Some car loans require a certain minimum amount as down payment. The balance payment is then divided into installments (with markup of course). The markup, or interest rate, varies with the duration of the loan. The longer the term of the loan the lower the markup. You can choose to make a higher down payment than required and control the amount borrowed.
  2. How long do you want to take to pay off the loan? The duration of car loans varies from 3 to 5 years. It is important to remember that a car depreciates over time so a car loan of longer duration may not necessarily be the best choice. The installment amount might be lower but by the time the loan is paid off the car will be worth a lot less than what you paid for it originally. Generally speaking most people don’t keep a car longer than 5 years so consider how long you want to be stuck with the same ride when deciding on the loan term.

Another advantage of getting your car financed is that you may benefit from value-added perks if your financing is handled by the same company that’s selling you the car. Some car companies offer financing options either on their own or in partnership with a financial institution. Not only will they take a lot of the paper work off your head, you may also benefit from free road tax for a certain time, free car servicing for a year, car inspections etc.

The best reason of all to get your car financed is why empty out your bank account when you have other options available? Everyone needs ready cash for emergencies and car financing offers you the choice to keep your cash on hand or invested and still get the car you (think) you deserve!

Jasper has been an enthusiast of the automotive and IT industries since the age of 16. He independently writes on the auto industry's recent happenings.