Getting a car loan is very common in the US and many parts of the world. But Is getting a car loan worth it? Is it really worth being tied to a contract for close to 60 months or more? Well, I believe by the time you’re done reading this article, you should be able to tell whether getting a car loan is worth it or not.
According to a study conducted by Experian in March 2020, the total auto loan debts Americans had was hovering around $1.3 trillion. This clearly shows how massively Americans rely on car loans to finance their car. But is it worth it? We’ll find out shortly.
But before we get into that, what really is a car loan?
What is a Car Loan?
A Car Loan is simply the financial assistance you are given by a lender so you can purchase your desired car. It is available for persons who simply cannot afford to purchase their new/used cars from their savings without seriously impacting their finances.
Borrowers can either get a car loan from a bank/ credit union or the dealership, with both options having their own merits and demerits that may have the potential to make one think getting a car loan is worth it or otherwise.
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How Car Loans Work
The way car loans work is not so complicated hence one of the reasons why so many Americans are able to go for car loans to purchase their cars. So long as you can’t pay upfront for that car you so desire, then getting a car loan will definitely cross your mind.
With the help of car loans, you will be able to own and drive your desired car whiles you make periodic payments to clear the loan. Mind you the loan comes at a cost known as interest hence monthly payments goes to settle both the interest and the principal amount.
There are options available with regards to where one can get a car loan. It could be from the bank, a credit union, auto finance companies, dealerships etc. Out of these options, financing at the bank, credit union or auto finance companies is the most ideal option as they are less expensive as compared to financing at the dealership.
Dealerships usually offer loans at higher rates as compared to banks or credit unions. But it is also possible to get very good deals at the dealership even with a not so good credit unlike the banks where they have strict rules with regards to credit score. Hence if you wish to finance your car with the bank, then you must work on your credit score to ensure that its good enough to qualify for a loan from your bank.
Dealerships on the other hand also consider the credit score of a borrower, only that they are a bit lenient when it comes to that. And with a cosigner, you can easily get approval at the dealership.
But to get a car loan, you must first apply for it from which ever lender you choose provided you are comfortable with their offer, receive approval, agree to their offer by signing their loan agreement, etc then you’re good to go.
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So Is Getting A Car Loan Worth It?
Now back to the main question, “is getting a car loan worth it?” Well, the answer to this question is debatable hence does not require a yes or no response. To some, it may be worth it but to others it is not.
So it all depends on individuals perception about car loans and that includes me. It can be worth it or not depending on the borrower’s financial situation and offer you are getting. Therefore as a borrower, you must examine yourself carefully and the offer you’re given before appending your signature on the dotted lines.
Make sure you’re not financing more than the value of the car. Additionally, try not to go for longer loan terms as that could result in paying more in interest although monthly payments will be low.
Car loans have come to the rescue of many who do not have the financial strength to pay upfront for their cars. However, this same car loans has put others in huge debts and financial distress that makes them regret going for a car loan in the first place.
So if after examining yourself, you think you are ready and can make monthly payments throughout the course of the loan term without any troubles, then a car loan will be good for you provided you are able to negotiate for a good deal.
However, if you’re left with nothing after deducting monthly payments from your income, then getting a car loan isn’t the best thing to do. It’s either you save up till you can pay upfront for your car or just forget about getting a car loan.