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Are you considering buying a car but unsure whether to take out a car loan or opt for saving up money gradually?

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Many people face this dilemma when deciding how to finance a big-ticket item like a car. While saving up the entire purchase price of the car before buying may seem like the financially responsible thing to do, it may not always be the best option. In this blog post, we'll explore the importance of considering the opportunity cost of delaying the purchase of a car, and how taking out a car loan through Find That Finance can be a smarter decision from a financial perspective.

What is Opportunity Cost?

Before we dive into the details, let's define what opportunity cost is. Opportunity cost refers to the loss of potential gain from choosing one alternative over another. In other words, it's the cost of not doing something in order to do something else. In the context of buying a car, the opportunity cost would be the potential gains that you could have earned if you had chosen to invest your money elsewhere rather than spend it on a car. In the case of delaying the purchase of a car, the opportunity cost is the cost of not having a car during the delay period. This can result in missed opportunities for work, social activities, and other important events.

The Cost of Delaying the Purchase of a Car

The longer you delay the purchase of your car, the more it will cost you in the long run.

Here are three key reasons why delaying the purchase of a car can lead to higher costs:

1. Inflation: Inflation is the rate at which prices for goods and services increase over time. Inflation means that the cost of goods and services today will be more expensive in the future. This applies to cars as well. If you delay buying a car for several years, the cost of that car will increase due to inflation.

2. Repair Costs: As your current car gets older, it will require more repairs and maintenance to keep it running smoothly. These costs can add up over time and ultimately make repairing your car a more expensive option than buying a new one.

3. Missed Opportunities: Delaying the purchase of a car may mean missing potential job opportunities, social events, or experiences that require reliable transportation. These opportunities may have a significant impact on your life, and missing out on them can be costly in terms of missed income, connections, or personal growth opportunities.

One of the biggest opportunity costs of delaying the purchase of a car is the impact on your career. If you rely on a car to commute to work, delaying the purchase can result in missed opportunities for promotions or job offers that require a reliable means of transportation. Additionally, if you are self-employed or run your own business, not having a car can limit your ability to meet with clients or attend important meetings.

Delaying the purchase of a car can also have a significant impact on your social life. If you're unable to attend social events or meet up with friends due to lack of transportation, you may miss out on important opportunities for networking or building relationships. This can have a long-term impact on your personal and professional life.

Another opportunity cost of delaying the purchase of a car is the cost of renting or using alternative transportation. While it may seem like delaying the purchase can save you money, the cost of alternative transportation can quickly add up. This can include the cost of renting a car or using ride-sharing services like Uber or Lyft, which can be expensive over time.

Lastly, delaying the purchase of a car can also result in missed opportunities for personal growth and development. If you're unable to travel or explore new places due to lack of transportation, you may miss out on important experiences that can broaden your perspective and enhance your personal and professional life.

The Benefits of Taking Out a Car Loan through Find That Finance

While it may seem counterintuitive to take out a loan to buy a car, there are several benefits to doing so.

Here are three key reasons why taking out a car loan through Find That Finance can be a smarter financial decision:

1. Opportunity Cost: As we discussed earlier, opportunity cost is the potential gain from choosing one alternative over another. By taking out a car loan, you can use your money to invest in other opportunities instead of tying it up in a depreciating asset like a car.

2. Building Credit: Taking out a car loan can help you build credit by making regular payments over time. A good credit score is essential for many aspects of your financial life, such as securing loans for a home or a car, credit cards, and even rental agreements.

3. Fixed Interest Rates: When you take out a car loan, you'll have a fixed interest rate, which means that your payments will stay the same over the life of the loan. This can help you budget your finances effectively and avoid any surprises in the future.

Taking out a loan can also allow you to spread out the cost of the vehicle over time, making it more manageable for your budget. If you save up the money to purchase a car outright, you may need to dip into your emergency fund or other savings, which can be stressful and leave you vulnerable in case of unexpected expenses. By taking out a loan, you can spread the cost of the vehicle over several years and keep your emergency fund intact.

Examples

Let's look at some examples to illustrate how delaying the purchase of a car can lead to higher costs and missed opportunities in the long run.

Example 1: John and Sarah

John and Sarah both need a car for their daily commute to work. John decides to save up for the car over the next three years, while Sarah takes out a car loan through Find That Finance to buy a car right away. Three years later, John has saved up enough money to buy the car, but the cost of the car has increased due to inflation. John ends up paying more for the car than Sarah did because she took out the loan earlier.

Example 2: Alex

Alex has been driving the same car for the past ten years. As the car gets older, it requires more repairs and maintenance to keep it running smoothly. Alex spends thousands of dollars each year on these repairs and eventually realizes that he's spending more on maintenance than the car is worth. Alex decides to buy a new car, but he must take out a loan because he didn't save up enough money over the years. He ends up paying more in interest because he has a lower credit rating due to all the missed payments on his repair bills.

Example 3: Jessica

Jessica is offered a new job that requires her to commute to the city. However, she doesn't own a car, and public transportation in her area is limited. Jessica decides to delay buying a car to save up money instead. She misses the job opportunity, which would have paid her more in salary and offered better benefits. She later realizes that the opportunity cost of delaying the purchase of a car was much greater than the cost of taking out a loan.

Find That Finance has some useful tools on their website and Apps designed to help you calculate financial stuff. You can find these Apps on your phone if you use Android, Apple, or Windows. What these tools do is figure out how much money you need to pay back if you borrow some money.

You enter the amount you want to borrow (cost of vehicle and loan costs), the interest rate charged by the lender, and the length of time you need to pay back the loan.
For example1, if you borrow $25,000 with an interest rate of 7% for 60 months, you will need to repay a total of $30,000. That means your monthly payment will be $495 plus a $5 transaction fee (for this example). If you plan to use the money to buy a car that costs $23,500, then the total amount you'll pay for the loan is $6,500 ($30,000 minus $23,500).
But there's more to consider when taking out a loan.

For example¹, what interest rate will the lender offer you? You also need to think about fees² , such as establishment fees, monthly fees, and early termination fees, as well as broker fees. These fees and charges can only be calculated by talking to a Broker like Find That Finance and are dependent on your credit profile, employment and residential status and more.

Luckily, Find That Finance offers a free loan assessment so you can figure out how much a loan will cost you with their help. It's important to remember that the financial calculator does not give you the whole picture. To find out what one of the many lenders associated with Find That Finance can offer you, get in touch with them today. Don't forget to consider all the costs involved before you take out a loan!

At an inflation rate of 5% (currently 7.4%) each year for the term on the loan then the cost of replacing the car would be $29,992.62. So, by delaying (based on these assumptions) you would need to save $500 per month to buy a car in five years’ time. Hang on that’s the same as the total loan cost and ignores all the other opportunity costs.

In conclusion

Delaying the purchase of a car may seem like a financially responsible decision, but it can cost you more in the long run. By considering the opportunity cost of delaying the purchase, taking out a car loan through Find That Finance can be a smarter decision from a financial perspective.

Don't miss out on potential opportunities – invest in your transportation today.

 

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¹ vehicle running costs like registration, insurance and fuel are explicitly excluded from this example.

² All lenders have their own fee structure and very from no fees to many.

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