Frugal Life: Are Car Loans Bad?

A car and a house – this is a lot of people’s dream. However, in order to achieve this dream, many people will have to take a loan from a bank or house/car financing institution. While with mortgages everyone can agree that few people can buy a home without taking a loan, car loans are a bit more complicated. Is a car loan good or bad, though? Here are some things you may want to know before you make any kind of decision in this respect:


It Depends

The short answer to the above-mentioned question is simple: “it depends”. It depends on your income, on why you want to buy a car for and, ultimately it depends on the exact type of car loan you take as well. In the end, it is entirely up to you to tell if a car loan is actually good or actually bad (or even both) for you and for your budget, so make sure to analyse your options thoroughly and to settle on something only when you are certain that it’s the very best solution for you.

Why Are Car Loans Bad?

Let’s start with the bad news: car loans can be bad from a number of points of view. First of all, cars tend to depreciate quite rapidly (even faster than houses, for example – or at least they do under normal economic circumstances). Secondly, car loans’ interest rates can get a bit higher than other types of loans, so you may want to take that into consideration before striking a deal with any kind of car lender (and you should shop around in any way, so that you can get the best deal).

Last, but definitely not least, a car is not that large of a purchase. It can be, of course, especially if you plan on getting a very expensive car. But even with a new car, there are a lot of affordable options. With a bit of planning ahead, you can save yourself tons of money on the long run by simply saving it and not getting a car loan.


Why Are Car Loans Good, Though?

Car loans are not “evil” – they do have their good parts too. For instance, if you live farther away from an economic centre, you will find that getting a car will provide you with the chance to commute to work – and thus, it will increase your odds of finding a better-paid job too.

Even more than that, some of the above-mentioned disadvantages can be dodged as well, especially if you plan carefully. For instance, your car will not depreciate as much if you are ready to invest in a higher end model or in a more recent model. Also, bad interest rates can be avoided too. If you have good credit (and if you have made your payments conscientiously until now, you most likely do), you will very probably get a fairly good interest rate too – and this will help you avoid paying too much over the actual price of your car.