How To Make Smart Financial Decisions When Buying A Car
Buying a car is a major financial decision that needs planning. Even a used car can cost several thousand baht, and not many people can afford it.
Having a car offers travel convenience especially if you are frequently on the go. If you opt for modern families 7-seater SUVs for example, you can use it for going to work, daily errands, or for simply keeping your family safe and comfortable during your trips. But we can't also deny the fact that cars aren't cheap. So if you have to buy one, you want to ensure that you are making a smart financial decision.
Here are some of the important factors to consider so that you will not regret your decision on buying a vehicle.
1. Savings and Income
The most important factor that could affect your decision has to do with your savings or income. If you have saved enough money to cover the cost of the car, this is the best way to get a new ride. Buying a used car with cash saves you finance interest and VAT that you would otherwise spend if you borrow money to purchase your dream car.
A used car may not be as expensive as a new car, but we are still talking about thousands of bahts. If you intend to seek financing, be ready to pay interest between 8 and 10 percent on average, plus VAT. If you are a small-income individual or family, the monthly repayment can easily eat up on your monthly income, and you don't want this to happen.
To know whether you can afford to borrow to buy a car, it's important to create a budget, incorporating your monthly repayment on the car, plus the added costs associated with having a car such as fuel, repairs, insurance and maintenance. Your budget will tell you if you can proceed or not with the purchase.
Regardless of the type of car you wish to buy, it's a good idea to have some savings to cover the partial or full cost of the car. Financing should just be a secondary option.
Although the VAT rate was greatly reduced from 10% to just 7%, 7 percent is still a big amount to pay. This is one of the reasons why some car buyers prefer to buy from an individual rather than a dealership. Buying from an individual or private seller generally will not involve VAT.
Because of the VAT savings, you may think that buying from an individual is a smart decision, but it is not always the case. If you don't personally know the person selling the car, you may end up getting a car that looks good on the outside but in reality, is a lemon. As a result, the savings you get from the purchase price may not be enough to cover future expenses and replacement parts of the vehicle.
Buying from a private seller can be a smart financial decision if you'll do thorough research prior to the purchase. This involves checking the history of the car and having a mechanic check the car for hidden defects. Of course, a test drive is also a must so you'll have an idea of the running condition of the car.
Generally, individual sellers only accept cash, unlike dealers who typically offer in-house financing. So this is something you also need to consider beforehand.
Moreover, many buyers still prefer to purchase from their trusted local car dealer despite the 7% VAT charge on top of the actual selling price. The reason behind is that with used car dealers, there is a reduced risk of getting into a scam or illegal schemes. Some dealers also offer after-sales service including repairs which could save you a big sum of money. Plus there is the convenience of not having to do most of the paperwork because these dealers will take care of almost everything for you. It is unlike buying from an individual where you usually have to handle all the paperwork yourself.
A smart financial decision considers not just the current cost of a product or service, but it also takes into account future costs and convenience. So you need to weigh the benefits of buying from an individual to avoid paying the VAT, versus buying from a dealership.
3. Financing Options
As mentioned earlier, paying in cash allows you to save on interest and VAT on financing. However, if you don't have available cash, and buying a car is really a necessity, your next option is to get financing.
It's important to note that if you borrow money from a bank or dealership, you'll also get charged with VAT aside from the interest..
The most common financing options for car buyers are banks and dealerships. With bank loans, you can use them to buy a car from a dealership or private sellers. On the other hand, dealership loans are limited only to the cars they are selling.
Moreover, dealer financing works the same way as bank financing. The difference is that with dealership financing, they will do the paperwork on your behalf unlike in bank financing where it is your responsibility. Because of this, dealers typically charge a markup on the interest rate. That would be an additional interest expense on your end. Of course, dealer financing is a good choice if you want to avoid the hassle of processing your loan application.
There are many financial aspects when buying a car, and making a wrong decision could equate to spending several thousand bahts more than you should or are willing to pay.
When it comes to buying a car, the most practical way to do it is to pay in cash. That way, you avoid interest charges and VAT. However, if you have to borrow, you need to weigh in your options and check the interest rate including other associated costs.