A car is a big expense. The cost of the car, the maintenance and upkeep over time, the fuel and insurance. It can be overwhelming to think about those expenses when you’re looking at buying a new or used vehicle. But think about them this way: Every time you trade in that car, you’re making a payment.
Now, if your budget is tight and the thought of buying new or used cars in miami scares you, consider this: You may be able to get out of debt more quickly with a used-car loan than with a new-car loan. And it could be far easier to pay off a used-car loan than to pay off the loan on a new car. Here’s why:
Almost every new-car loan is backed by a car manufacturer. What this means is that the dealership you’re working with has a financial stake in your ability to make payments. If you can’t make payments or if you default, the dealership has an incentive to make sure it gets reimbursed — and that means repossession.
It’s not that the dealership wants you to default. But, like any business, it has an interest in putting its resources to work. You’re one of those resources, and if your loan isn’t being paid off every month, the dealership is losing money.
The second reason you may be safer with a used-car loan is that the lender may not have a lot of information about you or your ability to pay off a large loan. You’re going to talk about your credit, your income, and your employment history. But the lender may not know who you are or what you do. And don’t assume that the lender will have access to all of that information.
The average loan amount for a new-car purchase is around $26,000. If you finance a car with a new-car loan, you’re going to pay an interest rate between 5% and 25%. If you can get a dealer to give you 0% financing, then your interest rate will be at the lower end of that range. If you check rates on a loan from your credit union, you might find that you’re looking at interest rates around 3%. That’s still more than what you would get if you used a used-car loan to make the purchase.