If you can afford all three options, is it better to buy a car with cash, pay a loan off within a few months, or pay all but a fraction of a loan and send tiny payments for the entire loan term?
It depends on your situation. If you are in a position to choose from any of the 3 options (most people aren’t), here’s some pros and cons to consider:Buy with cashPro: no payments taking a hit on your budget for 36–72 monthsCons: your savings/investments take a big hit; there’s less money left to earn you interest (now, and compounded over time)Borrow moneyPros: your savings/investments are not diminished, and continue to earn interest for you (which will compound over time); making monthly (on-time) loan payments builds up your credit history, improving your credit scoreCons: you are paying a monthly fee (interest) to someone else to use their money - it’s not going towards paying down your loan balance or helping you build up your savingsTake a loan, pay it off earlySituational: maybe you don’t have the cash now, but expect to have it soon, then this strategy can carry you over until thenConsider your personal financial situation and the terms of the loan - particularly the interest rate.For example, if there’s a promotional 0% APR (or something similar), it would be foolish not to take a loan and make payments over time, since (considering the time value of money) they are effectively paying you to use their money - you get to keep your savings/investments earning and compounding interest for you while you pay of the loan, and you aren’t paying a monthly fee to a lender.Perhaps you are sitting on a pile of cash in a low interest (<1%) savings/checking account (I don’t know why you would, but maybe you have a reason), it isn’t making you much interest anyway, then you probably want to pay cash, since your opportunity cost is minimal.In general…assuming your investments are making money (if they aren’t you should probably reconsider your investments), the lower the loan interest rate, the more the loan makes sense. The higher the loan interest rate, the more paying cash makes sense.
Is buying used cars the best option with minimum loss of money if I want to retain the car only for one year or two?
When someone asks these questions: the first think which comes into my mind is - why don't he/she mention the rest of the preferences?! :)This forces me assume two things here:1. You want to invest one time payment but a very small amount.2. You want to invest monthly payment which is very affordable.In either cases, there are lot more to be assumed. I assume you want to buy a regular car - i.e., SedanI assume you want to buy a reliable car - i.e., most common soldI assume you want to buy a car within few grands or 100-200 EMI values.and so on...For case 1. If you are planning to buy a 10+ year old car in less than 2.5k amount - always remember that you are putting yourself in a very uncomfortable situation unless you are extremely luck. No 10+ year old car would not stop giving you problems on a regular basis. The amount of expenses it gives you, the amount of money you spend, the amount of trouble you face - you might end up having a feeling all this is not worth it for a car which I'm gonna trash it for a value which I don't even care after 2 years. Instead, I would recommend buying a car in the budget of 5-6k which are less likely to give you problems which don't tear away your pocket (unless you are unlucky).For case 2. I recommend you to go for a lease/buy if any entry level car - ranging from Nissan Versa which starts at 12k to probably Toyota Corolla which starts at 17k. By all means, if you invest the same amount of 3k-6k which you wanted to buy an old used car into the down payment of this new car. Here are the advantages1. You start with affordable EMIs2. You start off your Car Insurance history with a new car3. Your credit history starts building.4. By end of two years, these cars generally do the break even for the money you have spent during this time.5. You spend almost nothing for the maintenance of the car.Hope this answer helps if the assumptions are right... oh wait, I spoke about American market. Do you live in USA? This is my biggest assumption. Please try to mention some details. Cheers!
What car should I buy?
You want to think about what you use your car for. A small car is great on fuel and around the city but might be a bit cramped if you go on long trips all the time. Do you have a lot of friends to drive around, are you always asked to be the driver. A car with four doors (not 2) would be a good option here. A small car is also great to fit in tight spots and for parking around the city. Seeing you are 19, it would be a good idea to get something relatively trendy but cheap as these are easier on the wallet to insure. If your car has any 'performance aspects' (turbo, lowered suspension etc) then this will make the car more expensive to both register and insure. When you go car shopping, i find it good to take a friend with me as this helps me make better decisions having another opinion If i was buying a car in your situation, I would go on a mid size car (for safety) and manual as these tend to be a bit more economical on the fuel!
What should I consider doing: start building a house, buy a car or save up the money?
I feel for your situation. I am glad you are thinking about the 3 options you mentioned. All 3 of them are important. Do you have any credit card loans paying off high interest? How’s your credit? – If so, go Debt-free first! 1. “Emergency Fund”.This is important even when things look solid with a good job and health. Not because something bad might happen in future, but because you can be assured and confident. 2. HomePaying mortgage is better than paying Rent. The value goes up and it is an asset. However, buying a home that is way out of your price range is not wise. The money you receive – will it cover the down payment or can you purchase a house without a loan? If you have to take a loan - Consider the amount of interest? 3. CarHow much does it cost to travel in public transport – time and money? Can you buy the car with the money you receive or will you have to take additional loan? If so, what will be the interest rate on the loan? How much does gas/ insurance cost? Are you sure you will not run into any maintenance problems with the car? From your post, I felt like you are leaning more towards buying a car. With your situation – Evaluate.All the best. Make a wise choice.