A car loan is essentially the same thing as a personal loan – but one that you can only use to purchase a car. That sounds like a bad deal, but the advantage is that the interest rates are usually lower. It all depends on which state you’re in, but you can find APR rates as low as 2.29%. The reason for the reduced rate is because the car acts as security for the bank, so as long as you can be responsible and pay the bills you’ll end up a winner.
First off, no financial decision is for everyone and a car loan is no different. If you’re a student or lack a reliable source of income, getting a car loan is certainly not the best way to go about getting yourself an automobile. Be sure to play around with a car loan repayment calculator to get some sort of idea of what your weekly or monthly repayments will be.
However, there are a variety of reasons as to why getting a secured car loan is a more than viable option.
The Rates: Basically what I covered above – you’ll get a lower rate on a secured car loan than you will on an unsecured personal rate. Not only this, but it’s generally easier to loan larger sums of money if it’s a car loan because, again, the car acts as security for the bank.
It’s Good for Credit: There are numerous ways to get your credit rating up – student loans, revolving credit and so forth. However, if you’re interested in securing a mortgage in the future, it’ll be a tremendous help to you if you’ve got a paid-off auto loan in your credit history.
Car Quality: Given the lowered rates and greater ease with which you can secure larger sums of money, getting a car loan gives you room to not cut corners on price and purchase a new car, or a well taken care of used car. If you buy a used car, always check log books for regular servicing. Otherwise, although you may think you’re saving money up front, constant repairs bills could deem it an un-wise investment. In this case, a new car could end up costing you just as much as a used one over the duration of the car loan.