Pros, cons of a car loan
AT one time, buying a car required one to have cash. Currently, it is possible to take an an auto bank loan to finance your car. You can deal directly with a car dealer to give you a car loan or you can access the loan through banks.
By Aidah Nanyonjo
AT one time, buying a car required one to have cash. Currently, it is possible to take an an auto bank loan to finance your car. You can deal directly with a car dealer to give you a car loan or you can access the loan through banks.
In many cases, loans directly secured from dealers are interest free, while those offered by financial institutions have interest on them but are alluringly packaged to make people take them.
However, is securing a loan to purchase a car a worthy venture?Hellen Kaweesa, the public relations officer at Parliament, says it depends on one’s source of income and nature of job.
She says if one has a permanent job and has made proper arrangements of paying back, a car loan is a good option. “If I find a car of my choice but I do not have cash to pay for it, there is no problem with taking a car loan provided I can pay back with minimum difficulty,†she says.
On the contrary, Ahmad Baale, a second-hand car dealer, has stopped loaning out cars due to defaulters and other attendant risks. “People are not honest enough to pay. Therefore, this may require court intervention which takes money and time,†he says.
Baale adds that the person taking the loan also risks losing the car in case he or she fails to finance it within the agreed time. This means losing both the car and the money already paid. In addition, Frederick Ndiwalana, a bank manager, does not encourage one to use a loan to buy a second-hand car since it may not last as long as a new one.
For example, for a second-hand car, before one completes the period of servicing the loan, he or she has already started replacing some car parts. He notes that the income level of Ugandans, especially the youth, is too low to afford buying new brand cars which averagely cost sh30m. So they resort to second hand cars that cost around sh12m and sometimes still find it difficult to finance the loan.
“Buying a car on loan is not good because the four years given for servicing it are not enough. For example, to complete a loan of sh12m, many banks make a monthly minimum deduction of about sh500000,†he says
“This is quite much, especially if one has to finance other home obligations such as rent, medical care and feeding. So time might elapse before fully paying back. As a result, the car might be taken over by the bank,†he adds. Therefore, Ndiwalana deduces that despite the need for a car, if you cannot buy it with cash, it means you have no extra money to spend.
This means it is unwise to take a car loan since owning a car comes with accruing costs in terms of taxes and maintenance. “Better save money through a high interest savings account until you feel more financially secure,†he advises.
Henry Kiweewa, a banker, adds that before ventures ito securing a car loan, it is vital to realise that a car is not an asset but a liability due to its depreciating rate.
“Many people mistakenly think buying a car is an investment due to the purchase price it takes. However, a true investment must produce returns from the money spent yet a car does not. Instead it increasingly consumes money as time goes on,†he says.
AT one time, buying a car required one to have cash. Currently, it is possible to take an an auto bank loan to finance your car. You can deal directly with a car dealer to give you a car loan or you can access the loan through banks.
In many cases, loans directly secured from dealers are interest free, while those offered by financial institutions have interest on them but are alluringly packaged to make people take them.
However, is securing a loan to purchase a car a worthy venture?Hellen Kaweesa, the public relations officer at Parliament, says it depends on one’s source of income and nature of job.
She says if one has a permanent job and has made proper arrangements of paying back, a car loan is a good option. “If I find a car of my choice but I do not have cash to pay for it, there is no problem with taking a car loan provided I can pay back with minimum difficulty,†she says.
On the contrary, Ahmad Baale, a second-hand car dealer, has stopped loaning out cars due to defaulters and other attendant risks. “People are not honest enough to pay. Therefore, this may require court intervention which takes money and time,†he says.
Baale adds that the person taking the loan also risks losing the car in case he or she fails to finance it within the agreed time. This means losing both the car and the money already paid. In addition, Frederick Ndiwalana, a bank manager, does not encourage one to use a loan to buy a second-hand car since it may not last as long as a new one.
For example, for a second-hand car, before one completes the period of servicing the loan, he or she has already started replacing some car parts. He notes that the income level of Ugandans, especially the youth, is too low to afford buying new brand cars which averagely cost sh30m. So they resort to second hand cars that cost around sh12m and sometimes still find it difficult to finance the loan.
“Buying a car on loan is not good because the four years given for servicing it are not enough. For example, to complete a loan of sh12m, many banks make a monthly minimum deduction of about sh500000,†he says
“This is quite much, especially if one has to finance other home obligations such as rent, medical care and feeding. So time might elapse before fully paying back. As a result, the car might be taken over by the bank,†he adds. Therefore, Ndiwalana deduces that despite the need for a car, if you cannot buy it with cash, it means you have no extra money to spend.
This means it is unwise to take a car loan since owning a car comes with accruing costs in terms of taxes and maintenance. “Better save money through a high interest savings account until you feel more financially secure,†he advises.
Henry Kiweewa, a banker, adds that before ventures ito securing a car loan, it is vital to realise that a car is not an asset but a liability due to its depreciating rate.
“Many people mistakenly think buying a car is an investment due to the purchase price it takes. However, a true investment must produce returns from the money spent yet a car does not. Instead it increasingly consumes money as time goes on,†he says.