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Why You Should Consider Avoiding Car Loans

Updated on October 25, 2011
Beautiful used vehicles can usually be found for a great price.
Beautiful used vehicles can usually be found for a great price.

Three Tips for Avoiding Car Debt

Unless it is absolutely necessary, avoid getting a car loan and these are the top three reasons why:

#1 - The Interest

Think about it! The car is already expensive and especially if you buy new you will end up paying out big bucks for a car that is just going to depreciate the moment you drive it off the lot. This is why purchasing a good used vehicle would be with your consideration. You can save thousands of dollars by just waiting a couple of years for your dream car. They say patience is a virtue that pays off and it truly does in interest that you will save!

#2 - Credit History and Repossession

Now, if you can absolutely pay on that car faithfully every month, then you are okay. But if there is a chance that it is too expensive, or if you are unprepared with emergency funds then you can do some serious damage to your credit. Unfortunately, many families make this mistake today but honestly you can not always be 100% for financial challenges that might come you way, but you can do what you can now by not purchasing something that would be a strain on your finances..

If you are unable to continue making payments, you run the possibility of getting your vehicle repossessed and yet still get stuck with thousands of dollars to pay (called the deficiency) that you will have to pay to the company you took your loan out with. Make sure to read all of the paperwork first and not sign anything unreasonable. Not always are these contracts fair, but if you signed it then you have to pay for the deficiency whether or not you actually have the vehicle anymore. It all sounds bogus that you would still owe money on the car but that is how it works and that is why taking out a car loan is bogus!

Can you imagine paying for a vehicle you don't even drive! That's a nightmare! On top of that credit and professional trust is often ruined.

(For more information on repossession, please watch the video below.)

#3 - New Vehicles Can Be Worth It!

It may or may not be a waste of money to buy something that is going to immediately depreciate after you purchase it. That is why it can be much more economical to get a good used car. However, if you do have the funds to purchase one of these new vehicles without a loan, then they have their perks as well. For example, you will probably not have to do as many repairs or such because you are not "inheriting another person's problems". Sometimes that is why people sell their used cars because their is a problem with the transmission or other part. That is why used car shopping is often just as tricky.

With a new vehicle you also have warranties and such that can be good in case their is something wrong. Plus, new cars are more reliable, safe, and usually more enjoyable.

Consider your budget when purchasing a new vehicle. Ask yourself: Do I have the money to pay for this in cash? Other questions can include: Will this vehicle last a long time? Is it economical? How much money needs put into repairs and what is the upkeep?

Pick a car that will make you happy while not putting a strain on your budget.

A Video on the Dangers of Car Loans:

In Summary...

  • Avoid car loans if you are able.
  • Seek lower interest or special payment plans.
  • Always read all the paperwork and contracts you sign!
  • Ask yourself questions and if you are married discuss those questions with your significant other.
  • Consider a used vehicle or one that is more economical.
  • Pick something you can easily afford. Make sure it does not put a significant strain on your personal finances.

Do you currently have a car loan?

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    • barryrutherford profile image

      Barry Rutherford 

      7 years ago from Queensland Australia

      Petertheknight

      great points, pretty much the experience I have had stories

      I have heard and the theme I have taken. More often than not the risks are never pointed out v the benefits of owning and running a car...

    • calicoaster profile image

      calicoaster 

      7 years ago

      These are really good points on not going for car loans. But, sometimes people need to get a car for various personal and professional reasons, which are beyond their control. I remember one of my friends was transferred for her company's job to some remote area in Detroit and she had tough time spending chilled winters there, as there were no public transport available and getting a chauffeur driven car was too expensive for daily use. At that time she had to buy a second hand car on loan, as she didn't have enough funds to buy on her own. I wonder why she couldn't get a nice lease option that time. May be she didn't know about it.

      Your points are quite helpful for people planning to buy a car on loan!! :) Best of luck!

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