Very few people have enough liquid cash on hand to pay for a car or other vehicle in full. That’s why there are car loans. As with most loans, car loans come in enough variety and with enough options that you’ll have to make a decision about which fit is the best one for you.
There are longer and shorter auto loans, and each comes with different strings attached. But when your best option for financing your vehicle is an auto loan, it’s better to be educated on your options than completely ignorant. That being the case, there are a few things you should know about the pros and cons of auto loans. Keep reading to discover them.
The Auto Loan Pros
Let’s take a look at the pros associated with getting an auto loan.
To begin with, you likely don’t have thousands of dollars you can just give a dealership in exchange for a car. With an auto loan, you’ll be able to make monthly payments you can actually afford in exchange for driving a vehicle you could never have paid for upfront.
Access to Better Vehicles
Going along with affordability, the ability to take out an auto loan to finance a vehicle gives you access to many nicer and better-quality vehicles than you would normally have if auto loans didn’t exist.
As long as you stay on top of it, taking out an auto loan is a great way to establish a steady, consistent habit of regular payments that will help build up your credit score and qualify you for better loan offers in the future.
Cons of an Auto Loan
Unfortunately, there are some negatives associated with getting an auto loan.
As with all types of loans, you’ll wind up paying more than the amount you took out on the loan. This is due to interest rates that loan companies place on the loans they give out. The amount of interest you pay will vary depending on your personal credit history and score, as well as who you’re borrowing from and the current state of the economy.
With a poor credit score, it’s possible to pay less for a greater period of time. Just realize that this will cost you even more in the long run.
Insurance can go up drastically when you take out an auto loan, especially if you’re purchasing a nicer vehicle with a higher value. If you borrow from certain companies, you’ll be required to pay extra on insurance in the case of accidents or damage to the vehicle in an effort to protect your lender’s interests.
It’s all too easy to be swept up in the grandeur of purchasing a brand new, top-of-the-line model. It’s also easy to rationalize the higher monthly payments with thoughts of being frugal and careful with expenses as you work to pay off the auto loan. Those rationalizations on the lot don’t always translate into reality at home.
Have you decided yet? It pays to arm yourself with as much information as possible. Learn more about auto loans and other types of loans today so you can make an informed decision.