Posted on: April 21, 2018 Posted by: James McQuiston Comments: 0

Auto loans tend to be big steps towards a financially-independent life, but they tend to take a big cut in our budgets. Sometimes, however, an auto loan tends to be a poor option depending on someone’s financial situation. Some people find it hard to assess whether or not it’s a good plan to take out an auto loan. So here are some pros and cons of auto loans to know before taking one out.

 

Pros

 

There are actually a lot of advantages when taking out an auto loan, especially if you’re on a budget. With the right planning, these things can be a bit hassling at the start but you can have a breather in the long run when you finally have the car of your dreams.

 

  • It’s Convenient: It can be very convenient if you try financing your new car with a dealer. You don’t have to fax or deliver documents such as bills of sale, or sign documents in various locations, just to get your deal done correctly. Some deals already have extra payment measures in place with your loan to make sure they get your paperwork done for you. This is useful if you don’t have the time to go to numerous places.
  • It Can Have Extended Terms: Sometimes, auto loans from auto dealers can offer you a degree of freedom for the kind of loan terms you need. Some credit unions and banks also offer financing on extended terms that usually last for 72 months. This is mostly applied for demo or new vehicles. Meanwhile, some dealers can also do this for automobiles that are a few years of age. These may cost you more in the long run, but they sometimes offer lower monthly payments that they can be manageable.
  • It Has Higher Advance: Some credit unions and banks tend to be strict regarding loan-to-value ratio advances. However, some auto loan dealers can actually arrange options with high loan-to-value ratios. For instance, they can offer 115-percent of the value instead of just 90-percent of the loan-to-value when dealing with banks and cars. Of course, not everyone wants to pay more than what the car costs, but sometimes people opt for this option especially in other industries.
  • It Can Build Credit: Another advantage of getting a car loan is that it can actually help build good credit for you. Of course, this is granted you pay everything properly on time. However, if you want a good way to ensure approvals for mortgages and other loans, a properly-done auto loan can get you the credit you need. After all, a strong and well-kept payment history can improve your score.

 

Though some car loans and auto loans tend to be a bit tricky, they do seem to be a good way to get a car, but always remember never to get an auto loan without a good plan. Try to check your own budget and schedule to identify whether or not a car loan can be a part of your long-term financial plan.

 

Remember, your financial plans are only as good as your budget and schedule. If you think a car loan is for you, consider whether or not you can meet the potential monthly payment requirements, or if you can make adjustments to your lifestyle in order to meet them.

 

Cons

 

There are also some cons and disadvantages when taking out an auto loan. Aside from the fact that you will potentially live below your usual lifestyle in order to make the monthly payment, there are other things to consider as well. These are some of the factors that you should check if you want to get your dream car.

 

  • It Takes Time: Unfortunately, getting a loan like this means you have yet another monthly payment to pay for in the coming months. This can be hassling, especially if you have other monthly payments and expenses as well. On top of other loans such as mortgages and rent, or credit card bills, an auto loan can be stressful.
  • It’s Costly: Auto loans tend to be costly, at least sometimes. Always remember that interest rates can be competitive with credit unions, banks, and auto dealers, and they tend to be a bit costly. Some little interest changes, say, 7-percent versus 6-percent, can have a very big impact when you add them all together. Sometimes, this is due to the fact that dealers try to “mark” and “add” points to the rates offered by institutions they work with.
  • It Can Get Add-Ons: You may have heard of this before, but sometimes dealers tend to add a lot of extra bonuses to your deal. For instance, you may get extra services and parts along with your deal. They may increase the overall cost because these are “extras.” Some of them can be very attractive options, but sometimes they tend to be useless. You can check with a professional to see if some of these features are really useful for you.
  • Third-Party Can Be Confusing: When you deal with credit unions or banks, you know you’re dealing with someone you can trust. They have to do their jobs well because the reputation of the bank is at state. However, accepting deals with lenders and auto lenders will have you sign a contract with someone you haven’t even met. These are the companies that handle the auto finances. Always make sure to check if the business you’re dealing with is legitimate to be safe.
  • Depreciation: Remember that it might be best to get loan lengths that are short, however. This is because cars depreciate over time like our gadgets. You may get longer loan lengths, but be prepared to realize that the car you own will probably not be worth much if you sell it in the future. So, this is another consideration you have to think about if you plan on taking an auto loan.

 

Though car loans and auto loans have disadvantages like these, people still try to take them because it’s the best option available thus far. Regardless of your decision, always try to check for alternative options., or look for a credible review. Just because these are disadvantages means you don’t necessarily have to not take out an auto loan. Remember, good financial planning can make any loan manageable.

 

Conclusion

 

Auto loans are sometimes good options when you really need a car but you don’t have the exact money to pay for it. After all, loans tend to be a regular part of our financial lives as well.

 

However, always remember the pros and cons of auto loans as listed above before you take one out. If you don’t think about how this can affect your financial life, then you might be in for trouble. What about you, what do you think should be taken into consideration before taking auto loans?

 

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