Archive for April, 2015

Why You Shouldn’t Use All Your Savings to Buy a Car

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There is no denying that cars are fun and that having a nice car can make you feel like you are on top of the world. The reality is that no one should buy a car they cannot afford, and that includes a car that costs every cent of your savings to buy.

Tying up all of your funds in a vehicle can put you in a serious bind, leaving you vulnerable to all sorts of financial disasters that could set you back for years. Here are some of the specific dangers that can happen when you leave your savings balance at zero to get that fancy ride:

You Will Not Be Able to Afford to Drive It

Cars have thousands of moving parts, and they all need a little bit of love to keep on moving. In other words, upkeep on a car is vital to keep the car running at all.

You could also end up having car issues and not enough money to afford fixing it. The first time you encounter trouble and need a $280 fix, you will have to let the repair wait or keep driving and hope it does not turn into a $2,800 fix. Without money for gas, oil changes, regular servicing and to make necessary repairs, your vehicle just could end up sitting in the driveway more often than enjoying a life on the road.

Emergencies Will Leave You Strapped

We can never predict what could happen in the next few months. You could break an arm or your hot water heater could go kaput. Without savings to pay for these things, you will have to find some way to afford them. Sometimes, you may not even be able to afford them.

Suddenly you are forced to choose between making a mortgage/rent payment or visiting the doctor. Even if you have health insurance, you could be forced to pay $50-$100 on copays, deductibles and prescription costs. Putting these expenses on a credit card could create a debt snowball that eventually gets out of control.

Preparing for these types of unforeseen incidents is why they call some savings an “emergency fund.” Make sure yours is well-stocked to avoid taking cold showers and eating ramen for the sake of paying cash for a car.

Try a car loan calculator to see what your monthly payment would save you

Your Savings Can Often Be Better Spent

Cars are appealing and usually practical, but they are not always the best investment to make compared to other ones. Any time you had the option to spend money better on something else, it is called an “opportunity cost.”

Opportunity costs can include buying health insurance, paying off debts, investing in things like home improvements or education or even taking a few days off of work for a much-needed vacation. Spending all of your savings on a car, which can break down and lose value over time, can often leave you with little in return for your hard-earned money ten years down the road.

Car Loans Are Easy to Come By

Having savings is an awesome feeling. You may feel empowered by the idea of buying something pricey like a car with it in cash, but for the above reasons this could easily be a mistake.

Instead of potentially digging yourself a financial hole, you can take advantage of car financing loans. These loans give you a predictable and consistent way to pay off the amount you owe with more room to prepare for surprises.

You can even use a small portion of your savings to decrease the principal amount of the loan, or you could add to your monthly payments when you feel like it without committing all of your cash to one car. With enough savings, you could also qualify for a lower interest rate and friendlier repayment terms, letting you pay your car off quick without having to worry about building homemade casts or expecting ramen for dinner.

Visit our new and used auto loans page to find out more about how you can get the car you want and keep most of your savings where it is.

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