As of recent, drivers have witnessed just about every car deal imaginable. From interest-free payments to cash back incentives, new car loans are at an all-time low in 2021. This has given drivers greater motive to buy. According to Experian, U.S. auto debt grew to record heights despite the pandemic, reaching 1.37 trillion in 2020. Its a bit befuddling to see a world that has been trending towards at-home delivery, ride-shares, and more time spent at home become so invested in their cars. If anything, the pandemic has urged drivers to take a greater interest in the latest makes and models on the automotive market.
Though low interest rates are hard to pass up, there are some negatives to consider. These cons are outlined below, including the best way to make the most out of your car loan experience.
The pitfalls of car loans
Car loans are essential to most car buyers. They are the easiest way to get into the car you love without having to hand over all your savings. While buying in cash leaves you debt free, this is not a reality for most Americans. Before you get involved with a car loan in 2021, take a look at the stumbling blocks that might have you buying an electric scooter instead.
While most drivers know depreciation is a fact of car buying, they don’t always see the extent of its financial hindrance. Car depreciation is one of the most exorbitant investments, you typically lose 10% in value the moment you drive off the lot. It’s definitely something to consider, especially if you have your eyes on a higher priced vehicle.
Most car loans range within a five year span, however, some reach up to seven years. During that time, something could happen that causes financial strain in your life. For example, losing a job, house repairs, or experiencing a health condition. These variable factors could lead to late payments, which unfortunately take a toll on your credit history.
On top of credit concerns, drivers must factor in the long-term responsibility of having a car loan. Once you get into a car loan, you’ll be paying interest for years. Unless you’ve gotten a no-interest deal for a certain number of months. Needless to say, the more you pay in interest, the more likely you could end up upside down on your car. By the time your car loan is finished, you’ll have paid more than the car is actually worth.
Commute vs. cash
For many people, a commute to work is their main purpose for having a car. Besides a few errands or trips to the grocery store, you might not use a car as much as you think. Before buying a new car, you’ll want to look at the financial benefit of having an auto loan. Decipher whether or not the monthly payment and repair expenses are worth taking away from your monthly income. In reality, you are borrowing a significant amount of money to get to and from the place where you cash your paychecks. Is it worth it?
How to make the most out of car loans
Having a car loan might not be the best financial decision, but its definitely worth it if you love your car. Your vehicle will always be a living expensive until you omit having a vehicle all together. However, most car enthusiasts would put themselves in debt anyway to have the vehicle of their dreams. With that said, there are ways to make the financial burden more manageable. First, by paying off the loan quicker. If you have extra cash one month and have the opportunity to knock off more of your car loan, then do it. You don’t have to pay the minimum each month.
Second, keep your car until its no longer operable. On average, Americans are keeping their cars longer, which means they are taking advantage of having a paid-off vehicle. Once your car loan is complete, you’ll own your car outright and can still drive it for years down the road.