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Which is Better to Do - Buy a Car with Cash or Loan

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Purchasing a car is often a necessity due to multiple reasons; at the same time, it also holds an aspirational value that one cannot overlook. However, making this investment does not come cheap and requires substantial funds to realise it.

Now, if you have the funds in hand, buying a car with cash upfront can be a great idea. However, if you want to lighten your financial burden, a car loan in UAE might be an ideal choice. Both these methods have their merits, so read on to learn more.

Purchasing A Car with a Loan in UAE

Almost all major banks and financial institutions in the UAE offer auto loans. As this type of financing is secured, the interest rate is also on the lower side. However, there are a few associated fees that can drive up the overall cost of the loan. These may include processing fees, documentation charges, application fees and much more. 

Nonetheless, before you opt for an auto loan, you will have to arrange for a down payment. This is because most lenders finance up to 80% - 90% of the car’s value. Thus, the remaining amount has to be paid by you upfront. However, through research, you can spot a few banks offering car loans in UAE without a down payment.

Now, as mentioned earlier, car loan interest is a primary factor that will affect the loan cost. The amount of interest you end up paying throughout the cycle depends on two factors besides the rate of interest, the loan amount, and the loan tenure. Therefore, you need to consider all these factors and calculate your total spending towards loan EMI before deciding. A car loan calculator might help you in this situation.

Moreover, to avail of a car loan in UAE, you must first meet a few eligibility parameters. For example, most banks require you to have a salary between AED 4,000 and AED 8,000. Therefore, your chances of loan approval might be low if you have a lower salary.

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Benefits of Buying a Car with a Loan

There are a few benefits of purchasing a car through financing. Find about them below:

  • You will be able to buy your dream car comparatively early in life.
  • You won’t have to exhaust your savings towards a car purchase.
  • The loan will ensure that your investments and savings remain intact.

Purchasing A Car with Cash in UAE

Purchasing a car with cash upfront can be a good idea if you have enough savings. However, to do that, you need to devise an effective savings plan. Not just that, you will also have to invest some of your income. 

First, you will have to create a monthly budget and stick to it. Consider your daily essentials and let go of anything that is not necessary for you. A quick tip to execute this would be to spend 50% of your income on living expenses, such as rent, transport, food, etc. Next, you can allocate 30% of your income towards wants, such as entertainment, eating out, etc. Finally, 20% of your income should go towards your preferred type of investment. The type of investment you choose should depend on various factors, such as your investment goal, risk appetite and more. 

Benefits of Purchasing a Car with Upfront Cash

Here are a few benefits you can get by making your car purchase through cash:

  • This process is relatively simpler. You just have to choose the car, visit the dealer and make the payment to get access to the car.
  • It also offers more flexibility, as you can sell your existing car, if any while buying a new car. This will also lower your financial burden.
  • This process is also cheaper, as you do not have to pay any fees, charges, or interest. You can simply pay the total cash amount.
  • You will not have to meet strict eligibility parameters, as in the case of an auto loan.
  • In this process, you do not have to worry about missing any EMI and pay heavy penalties to cover up this mistake.
  • Lastly, you do not have to worry about adding more to your debt.

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To sum up, buying a vehicle with a car loan in UAE, or using cash has its advantages, as discussed above. Now, the final decision rests with you, the prospective buyer. If you are comfortable depleting your savings to purchase a car, you will surely save on multiple fronts. But that will leave you vulnerable to any financial exigencies. On the other hand, a car loan may seem expensive, but it will not dilute all your savings. So, compare both of these methods and then take an informed decision.

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