A car is one of the biggest assets that you will ever buy. When you are shopping for a car, you will likely have the option of either making the payment in cash for the entire car or to take out a car loan. While some people would prefer to pay in cash to not have a payment each month, for many people it would make far more sense to take out a car loan. There are five important reasons why it could be beneficial to purchase a car with a loan.
Frees Up Your Cash
One of the main advantages of taking out a loan when you are buying a car is that it will free up a lot of cash. If you are going to buy a newer car, you will find that the total sticker price can be well over $30,000 depending on the type of car that you want to get. For many people, this can be a daunting amount of money to spend out of pocket. Instead, you should consider putting down a small deposit and down payment and financing the rest. This will free up your cash for other purposes, which can include saving for the future or buying a home.
Low Interest Rates
When getting car loans today, many borrowers will quickly find that they can get great interest rates on them. Due to lower overall interest rates in the marketplace today, you can get a low rate on a car as well for a period that is five years or more in length. This can make the overall payment much lower as well. This will help you to fit any car that you want into your budget.
If you are going to pay for a car in cash, you likely will be very limited in your purchase decision based on the amount of money you have available. For most people, there is a lot more flexibility in their monthly budget when it comes to making an auto loan payment. This means you may be able to afford a more expensive car.
Improve Credit History
Another advantage of taking out a car loan is that it can help to improve your credit history. Having a good credit score is very important as it will help you to qualify for lower interest rates on mortgages, credit cards, and other types of debt. If you do not have a great credit score, or do not have a long credit history, taking out an auto loan is a great option. When you do take out a loan and continue to make payments on time each month, you will continue to see your credit score increase.
Finally, when you have an auto loan payment, you can build equity over time. While the car value will depreciate over time, the loan balance will decrease at a faster rate. This means that your personal equity in the car can actually increase over a longer period of time as you pay down the loan.