Why A Car Loan Could Be A Great Investment

Posted by Mckenzie on 20th Nov 2019

Why A Car Loan Could Be A Great Investment

If you’re in the market for a car, and you really want to buy new, I have good news for you.

Getting a car loan for a new car could actually be a solid investment!

Most people would agree that buying a cheap used car is more cost-effective in the short term than buying new. Because of this, many people will tell you that in order to save money, you should purchase a used car with cash.

However, used cars have additional costs and greater risks that, for some people, is not worth it at all!

Fact #1: Used Cars Cost More To Maintain.

They’re less fuel efficient. Fuel efficiency standards have increased dramatically over the past 15 years, and they continue to increase as hybrid cars become more and more the norm. Electric vehicles cost even less to fuel up, if you charge your car at home.

Used Cars Cost More To Maintain

Repair costs on average are higher for used cars, if you compare within the same model. Newer cars are less likely to have parts that are worn down and are in need of emergency repair, while used cars have had some wear on them.

The insurance is lower on used cars, but the savings on insurance is often not worth the added fuel and maintenance cost. Not only that, but after paying off the car, you will likely no longer need full coverage on the car.

Fact #2: Buying New Gets You A More Reliable Car.

Because newer cars have less wear and more technologically modern parts, newer cars are, in general, more reliable than older used cars.

Buying New Gets You A More Reliable Car

Caveat: compare within the same model. The truth is, some car models are less reliable than others.

Fact #3: You Can Get Low-to-No APR Financing With Good Credit.

People with good credit can take advantage of very favorable financing terms offered by car dealerships. You’ll need to shop around to figure out which terms are the most favorable, though.

However, not everyone benefits greatly from driving new over used. in order to REALLY get the benefits out of a new car, you need to do the following.

Do Not #1: Take a Loan For A Used Car

Certified pre-owned cars are cars that were previously driven, likely by people who leased the car. These, especially recent model years, may also be good purchases.

Take a Loan For A Used Car

Do Not #2: Buy A Car You Can’t Afford

One of the biggest mistakes people make when getting a car loan is buying a car they can’t afford. They do this mainly because they don’t know how much they can actually afford to pay for a car every month.

Buy A Car You Can’t Afford

How do you budget for a car?

Cars have several relevant expenses. These include:

  • Fuel (gas/electricity costs)
  • Insurance (full coverage)
  • Estimated repair costs
  • Finally: Car Payment

Your car payment will be the largest of these expenses. So understand what your budget can and can’t allow! If you’ve budgeted $500/month for your car payment only, you’re going to be getting a different car for someone who has budgeted $500/month for all car related expense!

Best of all, car dealerships are willing to negotiate prices and so should you. Again, shop around: visit other dealerships and make sure the dealerships know you’re visiting other dealerships. Make them believe you’d be an easy sale if they simply had the best price, because ultimately the salesmen just want their commission.

Do #1: Take Care of It

Learn as much as you can about cars, and specifically, YOUR car.
There are cars from the 90s with 200,000+ miles that are in perfectly good condition. These people, however, are not likely to sell them!

Do #2: Drive It For As Long As Possible

Most people keep a car for a few years, then get a newer model because it’s nicer.

Drive It For As Long As Possible
For those people, their car is a source of pride and joy. They will not get the savings you get, simply by being pragmatic about cars.

Do #3: Get The Best Terms

Your best bet to getting the best terms is to have a high credit score and understand what you’re getting into. Car dealerships love people who just want to pay a specific monthly payment for their car, because they know those people won’t read the actual terms of the financing nor will they try to get better terms!

READ THE FINE PRINT. Just because the terms of the loan let you get away with 0%, 0% interest for the first 12 months, doesn’t mean that the car is going to cost less in the long run!

Car dealerships make money on financing. Knowing that, you want to shop around for loans. Do some online searches and get quotes for car loans, and be willing to turn down dealer financing if you have to. However, you have the best leverage when it comes to dealer financing.

How Would I Know If A Car Loan Is Right For Me?

If this is you:

  • Chose a reliable, affordable car
  • Excellent credit score (at least 750), to pay the lowest interest rates
  • Excellent driving record and a responsible driver, to pay the lowest insurance costs + fuel costs,
  • Over 25 years old, to pay the lowest insurance costs
  • Willing to care for your car, to pay less for repairs down the line
  • Willing to drive the same car for over 10 years, to not deal with the effects of depreciation

How Would I Know If A Car Loan Is Right For Me

…then buying would be worth it.

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