Most people, even our parents, don’t know all there is to know about buying a car. More specifically, they often don’t know what you need to know when it comes to dealing with car debt. And because our parents didn’t know about these things, they couldn’t teach us about them.
If that has been the case in your life, take heart. It doesn’t necessarily doom you to making major mistakes when it comes to buying a car. With a little research and a few changes of habit, you can avoid many of the pitfalls that come with getting a car loan. Not sure where to start? Then read on. Here are five things your parents never told you about car debt.
1. Loss of Value
According to financial guru Dave Ramsey, cars lose their value by about 70% within the first four years of ownership. In fact, Ramsey points out that just the act of driving your car off the lot causes it to depreciate by 25%.So what does this have to do with your car debt? Well, if you have agreed to buy your new car for $10,000 and get a bank loan for that amount, it means that your car will only be worth $10,000 until you drive it off the lot. Then, once you drive it off the lot, it’ll be worth $7,500. You’ll be paying the loan for $10,000, plus the interest on that amount, but your car will decrease in value.
2. Pay Cash if you Can
In light of the information in the previous section, you’re probably realizing that you need to try to pay cash for your next car. But how do you do that? Ramsey suggests that you buy a cheap car for about $2,000 and then save the $300 or $400 a month until you can afford to pay cash for the car that you want.If on some level you’re protesting that you can’t afford to save that much money each month, you’ve already talked yourself out of a new car. If you had a car payment, you’d still have to pay that much each month in car payments.
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3. There are Different Kinds of Car Loan Debts
Most people look at auto debt as a car payment. However, there is also such a thing as auto title loans. The two types of loans are completely different.A car payment is a payment you pay each month pays for you to own the car outright. Usually, it takes several years to pay off that type of loan.
A title loan is a type of loan that allows you to borrow money against the title of your car. Typically, you can do this after your car is paid off. It’s also a short-term loan, meaning that most of the time it shouldn’t take you years to pay it off. Although people often use these loans to get their bills caught up, they can be used for other purposes, including paying for a vacation or even for investing in a small business.
Both types of loans require you to think about how you acquire debt. However, the outcome of each is different. One gets you a car. The other gets you cash for your car’s title, until you pay it off.
4. Pay off That Loan to Free up Cash
Fortune advises auto loan borrowers to pay off all car debt as soon as possible. The reason? The more money you have tied up with debt each month, the less you have to put into savings or to put toward investments.
People often assume that you can’t have a car without a car payment, but that isn’t the case. The faster you pay off your car debt, the more money you’ll save in the long run.
5. Be Smart About the Debt you do Have
Granted, there may come a time when you must borrow money to pay for a car. It happens. However, you should make it a point to save as much money as you can when buying a car.
If you look for models that are about to be discontinued, you’ll save money. Same goes with buying a slightly used car.
Additionally, you should never talk about a trade-in while you’re still negotiating the final price of your new car. If you don’t do this, you may wind up paying just as much in the end, due to inflated pricing for your new car by your car dealer.
Concluding Thoughts
Car debt doesn’t have to be inevitable. If you know what steps to take, you can avoid having a $300 or $400 car payment each month. This saves you from paying for a loan on a car that depreciates once you drive it off the lot. It also saves you cash for other expenses like investments and savings.Knowing the types of car loans that are out there as well as ways to save money once you do go car shopping will result in you getting the car you need at a price you can afford.
By 
Carol Evenson |
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Author Bio - Carol Evenson is a corporate trainer and experienced business consultant. She specializes in team management and growth hacking. | |
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