Monday, January 23, 2012

Getting Out of the Debt (ii)

My first case of debt was credit card debt, and the interest rates are unbelievably high. The next type of debt which people take these are for buying vehicles. There is a car leasing as well as financing option. Car leasing is one in which you purchase a car and make monthly installments to the company. This leasing option is for certain number of years and there is a limit to the number of kilometers or miles one could drive per year. And once that time limit has expired, the car should be returned back to the car leasing company. This time limit ranges from, say, three years to five years. So, all in all, nothing gained except for the ‘guilty pleasures’ of the fresh fragrance of the leather of the new luxury car and driving ‘round town for a small period of time. However, the money lost in paying monthly installments for that car and after returning it to the lot, means nothing was gained in leasing for all that time. 
Another option is financing a car, which means after making monthly installments for 3 to 5 years, one could own the car once all the payments have been satisfied. This is a doable option but it is also a very expensive one. The interest rates are quite high. And what I have seen is after driving ‘that’ brand new car for a few years after financing, the driving gets old, and the ‘dream’ car also gets old. And the individual also would like to change the car, may be before the financing time period is over. 
So, one has to really think through taking any of these routes before going for any of these options. Paying for the car out-right still outweighs any of the above options. One should always strive to pay for the car right away. That way, things will be more realistic. If you can afford a small car, buy a small car. And if you can afford a bigger sedan, then pay for that car. But when you lease or finance, you are just trying to live in your dreams by paying huge interest payments. Interest payments are the cost of living in your dreams. So get out of your dreams and be realistic. That way, all your savings are not going to the leasing or financing company. 
Initially, it would seem like you have gone broke with paying right away with cash for the car, but you have really secured your future and will save so much more by not paying any monthly installments for the car. Not to mention, that one has to consider the high premiums for the car insurance because the leasing or financing companies would require the buyer to protect their ‘asset’. Second, the buyer will be responsible for normal wear and tear of the car. So there are huge financial implications in these deals.
So I think the moral of the story is that if you have the money to purchase a car, that is great and go ahead buy the car, which you can afford, sooner rather than later. But if you are thinking of getting yourself in one of these debts, take your time and think through it. Try to wait and save money for some time for a car and then buy it. A lot of money will be saved by not paying interest payments to the leasing or financing companies. Not to mention, you will have a lot of quality time to spend with your loved ones, not getting worried about paying the monthly payments and will be securing your future too.

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