Car loans are a common way of purchasing a vehicle, whether you’re buying a used car or a new one. Let’s look at the pros and cons of car loans.
We’ll also compare car loans against the alternative means of securing a new or replacement vehicle.
The Pros of Car Loans
You can shop around for a better interest rate or loan terms, allowing you to find one that fits your budget. Visit this site for your car loan needs before you think you’re stuck with a high interest rate.
You’ll often be able to trade in your vehicle for a discount on the car loan. Furthermore, you may have the flexibility of rolling your remaining vehicle debt into the new loan balance.
When you pay the car loan off, you own the vehicle free and clear. You can be debt free in a couple of years. If you sell the car, you have equity in it. If you have a car lease or car subscription, you may not have any equity at all. All of that money has gone down the drain.
You have complete freedom regarding car insurance and car maintenance. You can choose which service providers you go to and how much you pay. You’ll pay less for the associated costs of owning a car than you would with the new car subscription model.
You won’t have to pay mileage overage charges or other penalties if you drive the wheels off your car. This makes a car loan a far better choice than a car lease for road warriors.
When you own the car, you can do what you want with it. If you’re leasing a vehicle, they may not allow you to add after-market parts to the car or drive it for a ride-sharing service. Conversely, if you need to drive for a ride-sharing service to make your car payments, that’s your business, not the car leasing service’s business.
When you lease or have a car subscription, and you have to abide by their terms. Violate the lease, and they can repossess the car even if you’re making the payments. Turn in the vehicle and be found to have violated the terms, and you’ll be hit with hefty fees. Buy a car with a car loan, and there aren’t nearly as many restrictions.
The Cons of Car Loans
This is a loan. You will have to pay interest on the debt. The interest rate goes up with the size of the loan, the loan duration and the number of dings on your credit report.
You can end up upside down on a vehicle. This is when the vehicle is worth less than what you owe on it.
This occurs due to vehicle depreciation that happens faster than the rate at which you pay down your loan. You can minimize the impact of this by paying extra on your car payment and having as short of a loan term as possible.
If you want to change vehicles, you either need to pay off the loan balance or must increase your overall debt load. Car loans are a poor choice if you change vehicles regularly.
If you run into financial trouble and can’t afford the car payment, it is difficult to trade in the vehicle for something cheaper or get out of the car loan. You may have to pay a fee to refinance the car loan at a lower interest rate or extend the loan term to lower the monthly payments.
