How To Be Wise About Getting A New Car Loan

Getting a new car can be exciting but very few people can afford to buy one with cash. Even people with savings need to get a new car loan to afford one. However, it can be very easy to fall into a trap and overspend on a car. This will implicitly cause you to get stuck with a new car loan that you may not afford.

One common mistake is to get a car that is too expensive. Having a new car loan means that you are also paying interest on the value of the car. As the car depreciates, you end up losing a lot of money. A car depreciates the most in the first 3 years after which the depreciation slows down.

A good practice when it comes to getting a new car loan is to look at cars that do not exceed half of your yearly income. If you cannot afford the car that you want because it exceeds that budget, you should not overburden yourself with a very large loan. An expensive car means high monthly payments that need to be accounted for and fitted into the family budget.

Another thing to keep in mind is that a new car loan is a great way to finance a car if you plan on keeping it for at least 5 years. By that time, you would have paid off the loan and benefitted the most from the car. Certainly, the car has depreciated but a new car has some major advantages. A new car comes with a warranty meaning that except for maintenance and consumables, you do not have to pay for repairs. During the warranty period, the dealer handles repairs that are covered by the warranty. After the 5 year ownership period, on average, cars start requiring major repairs which can be expensive. If you were to get a used car with cash instead of a new car loan, you can expect to invest some money into repairs which again can be counted as a loss.