So you have finally found the car of your dreams and are now wondering how to pay for it? Should you make a full payment in cash or should you take out a loan on the car? If you want to buy car in Dubai, UAE, make sure you assess these factors that CarSwitch experts have come up with because they can play a huge role in your ultimate decision.
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Return on Cash
For starters, do you have any cash stacked away that’s not earning any interest or profit? In other words, are you making a return on your cash? If not, then paying in cash makes sense. After all, that cash just sitting there is not doing you any good but if you buy car in Dubai, UAE with the cash then you could at least avoid paying interest on the car loan. In case you have the cash invested somewhere and it’s earning a higher interest rate than the one you would have to pay on taking out a loan then, by all means, let that investment stay.
Emergency Fund
Have you been saving up cash for a rainy day? If you are the kind of person that needs the comfort of having an emergency fund, then a loan might be a better option for you. If you use up your emergency fund by paying for the car in cash and then later end up making a quick sale to get that cash back, you would obviously be losing some money. For peace of mind, people sometimes prefer having liquidity, so they keep their savings intact and opt for a loan instead.
Cashflow Analysis
Take stock of your finances, including your income and expenses. This should give you an idea whether you have the sum necessary to pay off your car right away. If you don’t, naturally, you will have to take a loan, since that option will be easier on your cash flow. All you will have to do is the down payment (typically 20%) and then slowly pay off the car over a period of three to five years.
Debt History
Taking out a loan might not even be an option for some buyers due to their DBR (debt-burden ratio). The bank will decide whether to lend them money or not depending on their DBR which is the proportion of income going out in repaying debts every month. If the DBR is higher than the bank’s requirements they might not lend to you deeming it risky. In that case, you will have no option but to buy in cash.
Deals and Offers
Sometimes, especially during shopping festivals or Ramadan, Car Dealers offer very attractive zero-percent deals on financing for the first three years. Saving up three years of interest payments seems like a good option, right? Before you jump at it though, make sure you check the interest rate after the three years are up, since this would generally be very high. Also, find out if you can pay off the loan before the three years are up so you can avoid the future interest altogether.
The choice to buy used cars in Dubai, UAE with a loan or through cash payment depends entirely on your preferences, financial capability, and circumstances. Whatever choice you make remember to take into account the full cost of the loan versus cash payment and decide accordingly. And if you are still confused, buy used cars in Dubai, UAE through CarSwitch where experts can guide you through the entire process including the paperwork. Happy switchin’!
