Auto Loan

Auto loans and mortgages are about the only thing that I agree with as far as debt goes. But even auto loans can be greatly reduced or eliminated with planning.

First of all you have to consider how to “look” at your car. Is your car some sort of status symbol? Do you want to impress people with your car? Or is your car a way to get from point A to point B with no worry about what other people think?

You need to be realistic about this. Look at the car you have now, did you spend too much just for the look?

Let’s say you go to the dealer to get a car. You may say I need a car that gets good gas mileage to and from work and will the hold the family.

However you leave with a large gas hog, SUV because it’s got all the latest upgrades or it looks really nice. When a sedan would have been more economical.

Maybe you get a little sports car that won’t hold the whole family but that’s ok because you have the other car too. This one will be fun to drive.

The point is do you buy your car based on needs or wants? A nice new car would be fun and cool. But after all your friends have seen you in your nice cool car no one will care anymore. They have their own lives. You have to be realistic about car purchases. They can take up a large amount of your income. Both with the initial purchase as well as gas, insurance, and maintenance. Most families have 2 and some even have more cars.

Since you will be buying cars for the rest of your life it is important to make an informed decision before you get an auto loan

I am not going to talk at all about which type of car holds it’s value or has the best crash test rating. There are plenty of sites out there dedicated to that subject. I would recommend using them when the time comes however.

My point though is to show you how in general you can save money when it comes to car buying. And when you save a few thousand off the sticker price you end up saving so much more when you include interest on your auto loan.

Dealer Tack Ons are a big area that you need to know about. How often have you or has someone you know gone to get a car. Then when they are signing the papers for their auto loan all of a sudden the dealer says oh yeah there are all these fees. $187 here. $205 there. $59 for this. It adds up. Some of these may be legitimate but not all. Let’s face it you are there signing the papers their bet is that you won’t back out no matter how silly the fee is b/c you don’t want to lose face.

Find a reputable dealer and be willing to walk away, not as a negotiation tactic but if you think you are getting a bad deal. You can always go home, do a little research and go back again tomorrow. I bet the car, or one just like it, will still be there.

Also you are better off not getting a brand new car. I went to Kelly Blue Book online recently to do a little research Toyota Camry’s lost 15% of their value just driving them off the lot and 30% after 3 years. Pontiac Grand Prix’s lost 20% value immediately and 50% after three years. Most cars, unless they are a classic, will go down in value over the years. But losing an immediate 15%-20% just to get that new car smell is not smart. Your best bet is to get a 2-3 year old used car that has been well maintained and meets your needs. It should still have a lot of life left in it, have fairly new features, and hold it’s value as well as can be expected.

Find out the real cost of your auto loan. That 7% interest rate doesn’t seem so bad when you sign the papers but you need to see what the car is actually costing you.

If you pay $15,000 for a car, with a 4 year loan, and 7% interest rate you will pay $17,232. That loan actually cost you $2232. That's a lot of money. When you get an auto loan look at all your options. How does a down payment help? What does lowering the interest rate just 1% give me? Do I really need a new car now or can we get by with what we have and save for a next one?

Auto loans are often necessary but you can bet smaller loans, with less fees, and still get a very dependable car for a great price.

Also, if you can avoid an auto loan all together DO IT! You will probably end up with a smaller, older, but still worthwhile car that won’t cost you a ton. But also be aware that just because a car is cheaper doesn’t make it better you still have to be sure that it will not cost more in the long run due to high maintanence fees. Shop wisely. Save up for your car if you can.

"A man in debt is so far a slave,"
Ralph Waldo Emerson.

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