PERSONAL FINANCE: Pros and Cons of Car Loans
By Space Coast Daily // November 25, 2018
For many people in the U.S., having a vehicle isn’t negotiable. Those who live in areas without public transportation need a car in order to get from place to place.
Most people who purchase a car can’t do so with an upfront cash payment.
Currently, Americans have over $1 trillion in auto loan debt.
This is spread out amongst over about 107 million people, or over 40 percent of the adult population.
Certainly, taking out loans for a car is a common practice.
But there are both benefits and drawbacks to getting your car this way.
- Can Get a Car if You Don’t Have Full Cash Amount: You’ll need to finance your vehicle if you’re unable to pay for it upfront with cash. This can be an intimidating process, especially for people who have never done it before. But if you really need a vehicle, the ability to finance can be a lifesaver.
- Can Usually Get a Better, More Reliable Car: Most people don’t have a ton of cash sitting around. Even if you’ve intentionally saved up in order to buy a car, your options will likely be limited. Financing your car helps you get a better vehicle, as you’ll be able to buy one of higher value.
- You Can Potentially Save Money if You Get a Good Interest Rate: Depending on your credit situation, you might actually be able to save money in the long run by financing your car. If you can lock in with a low interest rate, you can possibly invest your money to get a return on it instead of putting it all into buying a car.
- Keep Money in Case You Need It for Something Else: You never know what life’s going to throw at you. If you spend all your money to buy a car with cash, you might not have financial flexibility if something unexpected happens down the line.
- You Can Build Credit by Successfully Paying off a Car Loan: If you’ve had trouble with your credit in the past, you can likely improve it by paying off a car loan. You can find an online car loan that will fit your needs. It’s possible to get approval even if you don’t have the greatest credit.
- You Don’t Own the Car Outright: Some people cherish the peace of mind that comes with paying for their car in cash. When you do this, there’s no chance of your vehicle being repossessed by the lender because you don’t owe them money. However, it’s still possible to lose your car if you file for bankruptcy at some point, as assets are often taken in this process.
- You Can Sometimes End Up Paying Significantly More: Interest is a thing. You need to understand it before you finance a car. Use a car loan calculator to see if you’ll actually be able to afford the monthly payments. If you have a high interest rate due to poor or no credit, you might end up paying significantly more than the value of the vehicle.
- You’ll Hurt Your Credit if You Don’t Make Payments: Your credit score reflects how likely you are to pay back debt. As already stated, you can improve it by successfully paying off a car loan. But you can also badly hurt it if you fail to do this. Harming your credit score too badly can play a big role in your ability to borrow money down the line.
You need to carefully and honestly examine your financial health before you take out a loan. Borrowing money for a car can be great if you’re in a position to pay it back. But don’t do yourself a disservice by taking out an unaffordable loan.
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