Blog Challenge: Zachary N.

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How Do You Know a Car Loan
is Right for You?

So you’re looking for a “sick whip. Maybe you’re trying to attract a new ladyfriend. But before you sign on the dotted line, while the salesman curls his handlebar mustache, let’s think this through, shall we?

Do you want a new model?
If the answer is “yes”, great. I’m going to save a life today. Don’t EVER take out a loan for a brand new car. It depreciates very quickly, really, as soon as you take it off the lot. You will end up paying more for your vehicle than it’s worth in the long run. You’ll be driving around an $11,000 car, that once had a sticker price of $25,000, which you eventually pay $27,000 for. It’s not a good situation to be in.

You are much better off looking around for a used car that is good quality. These won’t depreciate nearly as fast. But try to remember that cars do depreciate as time goes on. So by taking out a loan you are almost always going to be losing money to some extent.

Do you have good credit?
Okay, so you’ve decided you want to buy a top quality used car to get the most bang for your buck. You’ve done plenty of shopping around, and you’ve found a great deal. Now it’s time to take a look at that credit score.

If you have good credit, you can good a lower interest rate. That’s a good thing. Make sure you know your credit score is going in. Especially if you’re going to a dealer. Most people think they have worse credit than they do. Dealerships know this.

Can you afford the vehicle?
Of course, you can afford the vehicle. It’s only four hundred bucks a month. But how does the long run look? Make sure you understand the length of time you will be paying off this loan and the amount of money it will cost you.

Many dealerships won’t make you pay a down payment if you have good credit. Tempting right? But make sure you can pay at least 20 percent. This will lower the amount of time you’ll be paying, lower your interest rate, and it will also help you avoid a situation where you owe more money than your car is worth.

Do you need the car?
If you don’t have a car to get to a job. And you want to buy a good quality, reasonably priced used car, but don’t have the money to buy it outright. Additionally you are diligent with your finances and have good credit. Congratulations I would say you are the best candidate for a car loan. Just make sure you shop around to find the best car, and the best financing options.

Some tips:

  • Try to keep the duration of the loan shorter. This will entail higher monthly payments but lower interest rates.
  • Pay for taxes, fees and “extras”, those dealerships would be happy to roll into your financing, with cash. If you can pay for these things up front it will save you from paying interesting them later.
  • A good strategy is to go to your bank or credit union and research their finance options. And then show them to the dealer and ask them to beat it or make a comparative price.