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Do you really need a car loan

Updated on April 14, 2014

Buying a Car

Car loans have become a popular way of financing the purchase of a motor car. So much so many of the world's car manufacturers have been supported and have grown over the last fifty years by the provision of car finance.

Companies such as Ford and General Motors as well as Toyota, Mercedes Benz, and BMW all have developed their 'in-house' finance companies that provide consumer car loans.For them they win both ways by selling cars and earning the interest on the car loan as well.

I Intend to portray a cautionary tale about taking out a car loan. It can be so easy, too easy in my view, for those just starting out in life getting chained into car finance debt. It was for me and is for many others; So often it can end in tears and years of financial hardship. Conditions have to be right and remain so otherwise they can turn sour very quickly. Often they do because owning and driving a car is inherently a high risk activity. A young person who has just obtained his/her drivers licence so often cannot wait to own a car. More does not have the money to buy a car outright and as such the only way is with a car loan.

Young people are by nature risk takers. Wanting to experiment in social activities a motor car appears essential in doing just that. Desire for getting a car can override all realisation of the reality of owning and operating one. As such are at high risk of both having a car accident and /or defaulting on loan repayments. Of course this may or may not be their fault either an accident or loss of job or income. Because of the calculated higher risk interest rates and insurance on car loans are set at higher rates for young car drivers. Basically a car is a big liability-unless it is absolutely essential for earning your lively-hood.

As soon as you drive any car out of a dealers driveway it loses value instantly and continues to do so . As well as suffering wear and tear from general use a motor car is also subjected to damage from the weather. Further from other motor vehicles colliding with it or running into common objects as well being stolen. Sure you can insure for damage/theft as you must with many of the available car loans and finance.but this is going to further put strain on a young persons budget.

The Insurance premiums must be kept up and for a young person the premium will be much higher. If something goes wrong, as it often does the consequences can mean a persons paying off a loan for years. You can be paying off a vehicle long after it has gone. If for instance you lose your job for whatever reason and are unable to make repayments on the loan or insurance then you can expect the car to be repossessed. When and if that happens you lose all the money you have paid on the car and you have nothing to show for it. Consider your options and consider whether you really do need a car loan.

Growth in time for cars being payed off in full.
Growth in time for cars being payed off in full.

“The things you own end up owning you.” – Tyler Durden, From the film Fight Club

Before you apply for a car loan you should check the interest rates and conditions on car loans. A bit of homework on what you end up paying for the loan. In other words take a reality check and see what you are obliged to pay back over four or five years in total. Then do your own risk analysis on what the running costs, repairs, petrol, parking fees., maintenance as well as the loan repayments and the full comprehensive insurance. Will you be able to pay this and if so what percentage of your income. You can look for the best loan rates. How do they compare with car loans offered by banks. Read the fine print. Is the loan a compound loan or one that reduces on an daily basis. Compare the rates and type of loan to see which cost less.

Better still look for alternatives to car finance. A smaller car perhaps, actually saving up to pay for a car at the rate you normally would if had been paying off a car loan . This will give you a good idea of what it will really be like sacrificing so much money on a regular basis to paying off a car. Moreover doing this not only gives you a good idea it is risk free because you actually have the money. In a good way you are rehearsing for the real thing but are not subjected to real risk of repaying often onerous loans and their accompanying interest. Having done this gives you the opportunity to reevaluate what type of loan if any is best for you.

If a motor vehicle is really going to improve your life: Consider the following points. How stressed you might become by driving in modern traffic conditions with it's on going risks. Consider reducing the possibility of a large finance loss by saving a large portion of the cars price. Do this by looking for the best possible car loan rates. Take plenty of time before buying a good car that is within your means. Ensure that you have comprehensive insurance to cover for loss or damage. Most importantly that you have a secure job (so difficult to do in these times of apparent great economic fluctuation) And that the repayments and running costs mean you can still pay for food shelter and clothing. Whilst they seem like sobering dour comments; spending years paying off loans for a car you could not really afford and or you have lost can give you pain and anguish for a very long time. Again consider all your options and ask the fundamental question do you really ned a car loan.


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    • monicamelendez profile image

      monicamelendez 5 years ago from Salt Lake City

      Very nice article. I paid cash for my last car and am hoping that I'll never have to get a loan for another one. I got a loan for a car when I was like 25 and had to pay ridiculous interest - like 8%. Over the course of five years, I ended up paying ridiculous money for the car that cost $24,000. I honestly don't know what I was thinking!

    • Gagan Modi profile image

      Gagan Modi 6 years ago from Delhi, India

      True, quiet a great hub. Its really required to see your finances and make short term goal plan if intend to take car loan. Online Car Loans are available at:-

    • rednickle profile image

      rednickle 6 years ago from New Brunswick Canada

      Wow. you know what, instead of telling you how good all your hubs are, i would simply just bookmark your page


    • Loren's Gem profile image

      Loren's Gem 7 years ago from Istanbul, Turkey

      Great share, Barry! Your advice and tips for anyone who's thinking about getting a car loan is simply worth reading. Really good info here. :-)

    • BJBenson profile image

      BJBenson 7 years ago from USA

      I hope you are safe and not flooded. Will pray for you and your country.

    • barryrutherford profile image

      Barry Rutherford 7 years ago from Queensland Australia

      Thanks for dropping by Simone. I could have burdened the reader with a couple of examples I know of how and why taking on such debt can distort fragile innocent lives for the worse.

      best left for another time... :)

    • Simone Smith profile image

      Simone Haruko Smith 7 years ago from San Francisco

      Thank you so much for the Hub and thoughtful warning about car loans! I hope to never need to borrow money for a car O_O

    • barryrutherford profile image

      Barry Rutherford 7 years ago from Queensland Australia

      Tammy L

      Indeed thank you for very much for this detailed and informative comment. There are probably tens of thousands of war stories involving the use of credit to buy a car. Maybe a lot more over the last 50 years. Today when new jobs are scarce and unstable it makes taking on heavy debt so risky. Added to this is the rising costs associated with running a car -fuel in particular.

    • Tammy L profile image

      Tammy L 7 years ago from Jacksonville, Texas

      Very good advice for the "first time car buyer" of any age. I have only financed one vehicle and I was well into my 30s at the time. Since I was a first time car buyer and a designated "high risk", my contract had added perks to ensure the finance company made more money off me. I'd made extra payments to pay off the loan earlier than was required. This angered the finance company because they were losing interest payments. They instituted a rule that no more than one payment in a 30 day period would be allowed. Of course, I was nearly paid off when they did this so it didn't really bother me too much.

      My mother-in-law is retired from Ford Motor Credit. She worked with delinquent accounts. She had a 98% success rate with her accounts by either having the loans paid up to date or repossessing the vehicles. Her nickname was "The Terminator" because of her high success rate. She tells the story of approving a car loan for a man in his 80s and being reprimanded for this because of the man's age. She basically told her supervisor that this man could not be legally turned down based solely on his age.