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For many people, getting a loan for a car seems like a good idea. But often they aren't taken as seriously as they perhaps should be. Borrowing money for a car is still a loan, and a loan should always be considered carefully before signing on the dotted line.

car loan pros cons

The Pros

Immediacy

Of course, one of the most popular reasons for taking out a loan to purchase a car is the immediacy. No saving required. If you need a car immediately for work or personal purposes, a loan might be one of your only option.

Upgrading

Another reason for someone wanting to take out a car loan is that they purchase a more expensive vehicle than they might be able to afford otherwise. Borrowing beyond your means is usually not a good idea, so be very careful before signing on the dotted line for a car that's too expensive for you. You will have to pay for it eventually!

Credit score

Some people will take out a car loan in order to build a better credit rating, which can be done quite easily by ensuring all your payments are made on time. If this is your idea behind taking out the loan, just ensure that the payments are well within your reach.

car loan interest credit score

The Cons

Interest

Overall, it is probable that you will end up paying more for the car than you would have had you paid for it upfront. With interest costs, fees, and depreciation on the vehicle, you might wish you had bought it outright.

Depreciation

Some say that a new car loses half its value after it is driven out of the sale yard. While this might be a slight exaggeration, new cars do depreciate quickly. This means that you will be potentially paying off thousands of dollars more than your car is worth.

Your car could be at risk

Often times, lenders will use your vehicle as security. This means that if you default on your payments, your car will be at risk of being repossessed in order for them to make back the money owed.

car loan lenders audi

What Should You Do?

Ultimately, the decision is up to you and your personal circumstance. If you have the cash available, it might be best for you to purchase a car within your price range upfront. But if you are looking to build and improve on your credit score, and need a new car as well, a loan might be the way to go. Exercise caution when making your decision, and be sure to add up all expenses including interest and fees to ensure you can make the best possible decision for you.

 

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