Whether buying a new or used car, buying it at once can cause financial strain to the buyer. This has made many people prefer auto loans, which they can get from banks, auto manufacturers, credit unions, or dealerships.
Wherever a borrower gets the loan, here are some of the advantages they get from it:
Buy now, pay later
One of the key reasons people fear buying a car is because of the high upfront cost. However, borrowers don’t have to consider laying down such a huge amount with an auto loan.
While they might still have to pay down payments, the amount is nowhere near the vehicle’s total price. The monthly payments that the borrower and lender agree upon are usually affordable, making it easier for the borrower to manage to pay them.
This makes it easier for the borrower to have a healthy financial status and not make any compromises.
It helps build a good credit profile
Many lenders consider a borrower’s credit history when determining loan amounts, interest rates, and payment period. A good credit profile boosts a borrower’s chances of getting better loans in the future with better terms and lower interest rates.
Borrowers who pay their monthly installments on time can improve their credit history within the loan’s repayment period. It also increases their chances of getting approved for refinancing by the same or a different lender. This way, they can get better interest rates and terms for the same auto loan.
Buying a good car
When buying a car with cash up front, buyers must choose a vehicle that fits their budget. While it could be a good car, having an auto loan gives the buyer flexibility to choose a car they would otherwise not afford when paying for it upfront.
It is better than leasing
According to Lantern by SoFi, many buyers who can’t afford to buy a car choose leasing or taking an auto loan. Leasing means that the buyer takes the vehicle and pays to have it for a specific period. While this is usually cheaper than buying, it comes with several downsides people don’t have to deal with when paying for an auto loan.
First, car leases come with mileage agreements. This means that the person leasing the car should not exceed a specific mileage; otherwise, they have to pay more. Also, after the lease period, the car owner can decide to return the car to the dealer or pay the remaining price to keep it.
With an auto loan, car buyers pay monthly installments, after which they own the car 100%. They don’t have to worry about mileage or returning it to the dealer. Also, it’s cheaper to repair a car bought with an auto loan than a leased car because insurance covers most of the damages.
While some people might think of taking unsecured loans to pay for their car, they might pay more than people who took an auto loan. For example, auto loan interest rates depend on the lender and amount, but since they are secured, the average apr for car loan is lower than unsecured loans.
Also, the borrower can secure lower interest rates through refinancing with the same or a different lender.
Car loans are among the most common types of loans people take. Before applying for one, borrowers should shop for different lenders, the best interest rates, and loan terms.