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Having a car makes it much easier to get around whether you are going to work, school, the gym, or to the store for groceries. Because of this convenience, it is no surprise that America is home to over 275 million vehicles.
However, if you want to get a vehicle you essentially have two ways to do it. You can pay for the car in cash, or you can borrow money to get a car. Simply put, if you want or need a car and don’t have the money to pay for it in cash, you will need an auto loan.
Their rates are often better than getting a personal loan and as long as you are careful, they can be a useful tool. But in order to ensure you borrow intelligently, we’ve decided to go over a few things to help you navigate the waters when it comes to auto loans.
Know-How They Work
Before ever agreeing to get any loan, especially an auto loan, you need to familiarize yourself with how they work. You are essentially borrowing money from a lender, and are agreeing to pay back not only that amount, but also any interest accrued.
Be sure to also familiarize yourself with things like the terms and conditions of the loan. This includes the exact amount being borrowed, how long the term is, the interest rate, down payment information, and your payment frequency and amounts.
Also, be aware that if you miss payments and default on the loan, you could lose your vehicle. Of course, every loan is different in regards to terms and conditions., so always read through the fine print before signing anything.
If you want a more in-depth and complete look at all things auto loans, be sure to check out this SCCU guide for car loans.
Have a Budget
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Just because you can get a certain amount of money from a lender, doesn’t mean you should borrow that amount. Be sure to take some time to reasonably estimate your car budget before deciding to get a loan.
You need to consult your savings, your income, and even your other debts before deciding how much you can spend on a car. Also, be sure to consider interest in your budget. While it might not seem like much, it can represent hundreds or thousands of dollars through the lifetime of the loan.
Also, be aware of the additional costs of ownership like paying for gas, insurance, and regular maintenance. If you purchase a car and get a loan without budgeting, it could put a major strain on your finances for years if you’re not careful.
Shorter is Often Better
Perhaps one of the most important things to think about when deciding on an auto loan is the length of the term. While the monthly costs of a longer-term can be enticing, as they will be lower, a shorter term is often a better idea.
The shorter your term for an auto loan, the more you will save on interest costs over time. Also, with many newer cars depreciating relatively quickly, the last thing you want to do is still be making payments on a car that is hardly worth it anymore.
Making a decent down payment is a great way to not only get a shorter-term but ensure the monthly costs aren’t too difficult to handle, either.
We hope this blog post has been able to help you decide whether or not you need an auto loan.
