Before you go for an auto loan, there are quite a few things to know to make the right move. We share with you few points to consider regarding an auto loan.
Points to consider regarding Auto loan:
#1 Why a car loan?
Who wouldn’t love to own a BMW but whether you can afford it with cash, makes a difference. A car loan might sound the best thing when you get the loan to buy your dream car. But everything comes with a price and it depends on how you go for it.
#2 Say yes or no to auto loan
Case: Yes to auto loan Let’s consider you’ve got a very good credit score and you can get a 60-month loan with 3% interest rate. You can get $15,000 @ 3% interest and invest it. You need to sell a few shares every month to repay the bank every month at $270. Still, if the market is good, you can make a good profit. After 60 months, you can get a profit of $8,000 which is quite a good amount. The profit you might get solely depends on the stock market trend which can even take a sharp turn downwards at times. Case: No to auto loan If you choose to pay cash to buy the vehicle, then you can save the interest amount. Taking loan of $15,000 @3% interest would be $1,172 which you would have saved if you’d paid in cash. $1,172 might not be big figures but the stress of repaying a certain amount every month can be avoided.
#3 The Negative side of auto loans
You would be on cloud 9 when your dream car becomes affordable through auto loans but everything has a dark side. Let’s look at the negative side of the auto loans:
It tempts you to buy more than you can afford
When everything that was beyond budget through cash becomes affordable, you can get tempted for more. If your credit score is very good, the banks will be more than willing to offer to auto loans and collect more interest from you. Most people get tempted with such offers and purchase things that are out of the budget. The latest study shows that non-housing debt in the US rose in the 2nd quarter and the major share is auto loans by 23%. Auto loans have become an effective way to lure customers by helping them buy whatever they want. In 2017, there is 23% increase in the number of people taking auto loans.
Is it okay to invest that money?
After getting the auto loan, most people prefer to invest it in stocks or something else. The stock market comes with fluctuating risks and thus putting the loan amount in stocks can be a risky decision. Ignore the risks, not everyone would be wise enough to invest that money. Americans take disastrous decisions when it comes to money management. Some people even take bizarre decisions and spend the huge amount on buying kinds of stuff like a jet ski or a yacht. This is one such reason why so many families are in debt today.
Spending on a depreciating asset
We all know that car is a depreciating asset and taking such a huge loan for it would be a bad move. Unlike real estates, you can never expect gains over time with an auto loan. In the worst scenario if you’d to sell your car you’d end up owing money. Buying a used car might be the better decision with auto loans.
The monthly repayments
What is more heart-piercing than repaying the money every month out of pocket? Obviously, the bank would not give you loan as a gift. Taking auto loan is easy to buy any vehicle but think about how much money you can spare to repay the loan.
One of the interesting ways to make money is to invest other’s money at lower interest rates but it comes with a risk of pitfalls on the way. It’s always better to go a loan which you can afford to pay back. The best way is to save for a car and pay by cash.