A car loan can seem like a questionable decision. Why not save rather than take a loan on an asset that falls rapidly in value? Especially if you are young, many people warn against prioritizing a car if you do not have the money. It can damage your ability to get a mortgage and by car comes a lot of unforeseen expenses. You also have to pay liability insurance, if any, and gasoline prices are high.
Even if you live in the countryside it can be argued that the car should not be the first priority. You can get a cheap car for 20-30,000 dollars, but that said it can quickly become expensive with a car that needs to be repaired all the time, so most people aim for 50,000 dollars as the cheapest solution. If you can’t get help from family or others, it might be best to wait.
In what context should one still consider putting in debt to obtain a good vehicle? Here we look at 3 situations where you should consider a car loan.
The most obvious reason why you should consider a car loan is that you have a job that requires you to drive your own car. Then you will also be able to cover some of their expenses through a driving allowance. There are several jobs where you will need your own car. As a plumber or electrician, for example, one must be able to take some special equipment to customers who live in different places. In such circumstances, it may be worthwhile first to investigate whether it is possible to obtain loans directly from the employer.
If you have a family you may also need a car. The old car may have grown so old that it causes far more expense than a loan. Savings and waiting are then not only inconvenient but potentially costly. If you have a home you can also possibly put it as collateral and get better loan terms.
3. New car
It is also conceivable that you are in such a situation that you have to buy a new car before you can sell the old one. Then it may also make sense to take out a consumer loan as you avoid fees.
There are several places you can go to get a car loan. If you take out a loan through the car dealer, it is statutory that you can only borrow 65% of the purchase price. But there are also some finance companies that offer car loans and you can in theory borrow the entire purchase price. The interest rate can vary greatly, and normally you can expect an effective interest rate from 6% to 12%. Most banks also provide mortgages on the car.