Sunday, 8 May 2011

Is An Auto Loan Good Or Bad Debt?

An Auto Loan is a “BAD DEBT” because
Automobiles depreciate quickly When First time car buyer borrow money against an asset that depreciates rapidly, you’re simply purging money.
Automobile loans are fairly high interest loans As a form of consumer loan, most auto loans have a fairly high  rate of interest. Any loan that has such a high rate means that  investing much of the monthly payment into interest.
Automobiles can be paid for in cash with some careful planning If  spending is planned carefully, you can buy your next automobile in cash.

An Auto Loan is a “GOOD DEBT” because
Automobile ownership opens the door to greater financial gain With an automobile, you can commute to work, which greatly expands your potential employment and earning market.
Careful buying can reduce the auto depreciation If you purchase a top-quality late model used car, your automobile will depreciate much slower than if you bought a new lower-end model. Hedge your bets by looking for solid deals instead of jumping on something shiny.
Good credit will get you a good rate If you have strong credit, you can get a very nice interest rate on an auto loan.

There are some reasonable arguments on both sides, and to think that a loan for first auto purchase is fine but it becomes a much worse deal on later purchases because of the financial losses. After some time, you have the capacity to save enough for a car by utilizing a strong savings program (i.e., continuing to make car payments after the car is purchased). In other words, paying cash for an auto is better once you’ve managed to pay off a car, but a loan is acceptable of you don’t have many assets at an early stage in your life.

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