Category: Personal Loans

Auto Loan: New Car vs Old Pros and Cons

There are over 25 million auto loans every year in the United States, with the majority of drivers using finance to pay for new and used vehicles. Car loans are some of the most common secured loans in the country and for many Americans, a car is the second most expensive purchase they will make in their lifetime.

But shopping for a new car and applying for a suitable car loan is a stressful experience filled with uncertainty and difficult decisions. One of the most difficult decisions is whether to opt for a new car or a used one. In this guide, we’ll showcase some of the pros and cons of both options, pointing you in the right direction and helping you to make the right choice.

Reasons to Buy Used

It is satisfying to own something that is brand-new. It’s fresh out of the factory—you’re the first to use it, the first to experience it. 

Consumers are prepared to pay a premium just to be the first owner. iPhones and other tech are great examples of this. You could save 30% on the price of a new phone by opting for a refurbished model. The screen and case will be near-perfect, the hardware and software will be fully functional, and everything will be backed by a warranty. However, you don’t get the satisfaction of peeling back the protective stickers and being the first to open the box.

It’s a similar story with cars. There are no stickers to peel and boxes to open, but you can’t beat the new car smell or the way the steering wheel feels in your palms.

That’s not all, either. There are many other benefits to owning a brand-new car and using your auto loan to acquire one.

New Cars Depreciate Fast

A $200,000 mortgage acquired today might cost you $300,000 or more over the lifetime of the loan. However, in a couple decades, when that mortgage is in the final stretch and you own a sizeable chunk of home equity, you’ll likely have something worth $250,000, $300,000, or more.

If you get an auto loan on a new car, it’s a different story. As your interest increases and your payments exceed the original value, the current value nose-dives. At the end of the term, you could have something that is worth a small fraction of what you paid for it.

As an example, let’s assume that you purchase a $40,000 car with a $10,000 down payment and a $30,000 loan. With an interest rate of 6% and a term of 60 months, you’ll repay just under $35,000 over the lifetime of the loan.

However, as soon as you drive that car out of the lot, the price will plummet. At the end of the first year, it will have lost between 20% and 30% of its value. If we assume a 20% loss, that car is now worth just $32,000. The irony here is that you will have paid just under $7,000 in that year, and as the years progress, you fall into a pattern where the more you pay, the less it’s worth.

In the next 4 years, the car will experience an average deprecation of between 15% and 18%. Again, let’s assume a conservative estimate of 15%. That $40.000 purchase will be worth $27,200 at the end of year 2; $23,120 at the end of year 3; $19,653 in year 4, and $16,705 at the end of the loan.

And don’t forget, that vehicle cost you $45,000 in total.

Unless you’re buying a rare car that will become a collectible, all cars will depreciate, and that depreciation will be pretty rapid. However, used cars don’t suffer such rapid deprecation because they don’t have that inflated sticker price. If you take good care of them and pay a good price, you won’t stand to lose as much money.

Used Cars are Cheaper

As stated above, all cars depreciate, but if the first year suffers the biggest drop then why not buy a car that is just a year or two old?

It’s the same car and offers many of the same benefits, but you’re getting it for up to 30% less on average. For a $40,000 car, that’s a saving of $8,000. Once you add a 20% down payment, your loan only needs to cover $25,600. For a 6% loan, that’s just $495 a month, compared to the $619 you’d pay on a $40,000 new car with the same 20% down payment.

That puts more money in your pocket and less debt on your credit report. That’s a double-whammy well worth sacrificing a new car smell for.

It’s Still Nearly New

If you buy a used car that is just a couple of years old, you can still get something that has been well maintained and is just as impressive as it was the day it rolled off the lot. 

Think about the last time you bought a brand-new car, computer, phone, musical instrument—or anything else that came with a premium price tag. You probably kept it in perfect condition soon after buying. Everyone goes through a period of doing their utmost to keep a new purchase immaculate and the more they pay, the longer than period lasts.

Most consumers will keep a car in perfect condition for at least two or three years, but no matter what they do, they are powerless to the depreciation. This means you can get an almost-new, perfect car that is nearly a third cheaper than it was when it was new.

Reasons to Buy New

Α used car doesn’t provide you with that enjoyable, tactile experience. You can’t enjoy the ubiquitous new car smell and you won’t be the first owner. However, there are numerous benefits to buying used instead of new, not least of which is the amount of money you will save now and in the future.

More Finance Options

You have a few more options at your disposal when it comes to financing a new car. Many dealerships offer low-interest and even no-interest financing to encourage you to sign on the dotted line. 

These deals often have hidden terms, penalties, and other issues, and if you fail to make a payment, they won’t hesitate to take your car from you. However, if you’re struggling to finance elsewhere and have your heart set on a brand-new car, this could be your only option.

Make sure you read the terms and conditions closely and don’t let them bombard you with small print and sales talk. They are there to sell you a car. All they care about is your signature on that contract and if that means glossing over a few of the terms, they won’t hesitate.

More Customization and Better Features

Technology is advancing at a tremendous pace and this can be felt in all industries, including the automotive sector. A lot can happen in a few short years and if you buy a used car as opposed to a new one, you could miss out on a host of electronics, safety features, and more.

Customization is also possible with new cars. You can request colors, fabrics, and other aesthetic changes, as well as additional features relating to the power and performance of the vehicle.

Better Cover

New cars offer bumper-to-bumper warranty cover, which means that you’re covered in the event of an issue. If major repairs are needed, you won’t be out of pocket, and these warranty plans tend to offer roadside assistance as well.

This can be true for used cars as well, with the manufacturer’s warranty being transferred when the car is in the hands of a new owner. However, the warranty is at its longest and most useful when the car is first purchased.

Cheaper Maintenance

The warranty won’t cover everything, and you will still be responsible for normal wear and tear. However, because the car is new, it should require less maintenance and may take several years before you need to make significant purchases.

Surveys suggest that new car owners pay anywhere from $0 to $300 for maintenance during the first 12 months, with this fee spanning between $300 and $1,100 once the car is a decade old.

Simpler Process

Used car purchases take time. You need to find the vehicle, inspect it, negotiate with the seller, and then hope you can agree to a price and payment plan. If you want something specific with regards to colors and features, you may have to search many inventories and individual sellers before you find something that fits.

With a new car, you simply agree to a budget and see what’s available. If you need any tweaks or changes, you can request them directly from the dealer.

Summary: New vs Old

There are two ways at looking at this. Firstly, there are more advantages for buying a new car and these include some pretty important ones. However, the advantages for buying used are much bigger and if your bank balance or credit score is low, that could be the deciding factor. 

In any case, it’s important to look closely at the pros and cons, evaluate them based on your personal situation, and don’t rush this decision.

Auto Loan: New Car vs Old Pros and Cons is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

What Is A Consumer Loan?

A consumer loan is a loan or line of credit that you receive from a lender.

Consumer loans can be auto loans, home mortgages, student loans, credit cards, equity loans, refinance loans, and personal loans.

This article will address each type of consumer loans.

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Types of consumer loans:

Consumer loans are divided into several kinds of categories. They include auto loans, student loans, home loans, personal loans and credit cards. Regardless of type, consumer loans have one thing in common: you have to repay the loan at some period of time. 

Auto loans

Most people who are thinking of buying a car will apply for an auto loan. That is because buying a car is expensive.

In fact, it is the second largest expense you will ever make besides buying a house. And unless you intend to buy it with all cash, you will need a car loan.

So, car loans allow consumers to purchase a vehicle where they may not have the money upfront. With an auto loan, your payment is broken into smaller repayments that you will make over time every month.

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You can choose between a fixed or variable interest rate loan. But the most important thing is, whether you’re buying a new or used car, it’s important to compare loans to help you find the right auto loan for your needs.

Start comparing auto loans now!

Home loans

Another, and most common, type of consumer loans are home loans. A home loan or mortgage is a loan a consumer receives for the purpose of buying a house.

Buying a house is, undoubtedly, the biggest expense you’ll ever make in your life. So, for the majority of consumers who want to purchase a house, they will need to borrow the money from a lender.

Home loans are paid back over a period of time. Those mortgages term are typically 15 to 30 years. They can be variable rate or fixed rate. A fixed rate means that your repayments are locked in for a fixed term.

Whereas a variable rate means that your repayments depend on the interest rate going up or down when the Federal Reserve changes the rate.

Over the loan’s term, you will pay back the principle amount of the loan plus interest. This makes it very important to compare home loans. Doing so allows you to save thousands of dollars on interest and fees.

Personal Loans

The most common types of consumer loans are personal loans. That is because a personal loan can be used for a lot of things.

A personal loan allows a consumer to borrow a sum of money. The borrower agrees to repay the loan (plus interest) in installments over a period of time.

A personal loan is usually for a lower amount than a home loan or even an auto loan. People usually ask for $500 to $20,000 or more.

A personal loan can be secured (the consumer backs it with his or her personal assets) or unsecured (the consumer does not have to use his or her personal asset).

But most of them are unsecured, so getting approved for one will depend on your credit score, income and other factors.

But consumers use personal loans for different purposes. People take out personal loans to consolidate debts, such as credit card debts. You can use personal loans for a wedding, a holiday, to renovate your home, to buy a flt screen TV, etc…

Student Loans

Consumers use these types of loans to finance their education. There are two types of student loans: federal and private. The federal government funds a federal student loan.

Whereas, a private entity funds a private student loan. Generally, federal student loans are better because they come at a lower interest rate.

Credit Cards

Believe it or not credit cards is a type of consumer loans and they are very common. Consumers use this type of loan to finance every day expenses with the promise of paying back the money with interest.

Unlike other loans, however, every time your pay with your credit card, you take a personal loan.

Credit cards usually carry a higher interest rate than the other loans. But you can avoid these interests if you pay your balance in full immediately.

Small Business Loans

Another type of consumer loans are small business loans. These loans are used specifically to create a business or to expand an already established business.

Banks and the Small Business Administration (SBA) usually provide these loans. Small Business Loans are different than personal loans, because you usually have to provide a collateral to get the loan.

The collateral serves as a way to protect the lender in case you default on the loan. In addition, you will also need to provide a business plan for the lenders to review.

Home Equity Loans

If you have your own home, you can borrow money against it. These types of consumer loans are called home equity loans. If you’ve paid off the mortgage on the home, you can borrow up to the full value of the home.

Vice versa, if you’ve paid half of the mortgage on the home, you can borrow half of the value of the house. You can use a home equity loan for several purposes like you would with a personal loan.

But most consumers use this type of loan to renovate their house.  One disadvantage of this type of loan, however, is that you can lose your house in case of a default, because your house is used as a collateral for the loan.

Refinance loan

Loan refinancing is a basically taking a new loan to replace an existing one. But you get this loan specifically either to refinance your existing mortgage or to refinance your student loans or a personal loan.

Consumers usually refinance in order to receive a lower interest rate or to reduce the amount of monthly payments they are making on their existing loans.

However, reducing to a lower payment will lengthen the time to pay off the loan and you will accrue interest as a result.

Consumers also use this type of loan to pay their existing loans off faster. However, some mortgage refinancing loans come with prepayment penalties. So do you research in order to avoid that extra charge.

The bottom line is consumer loans can help you with your goals. However, understanding different loan types is important so that you can choose the best one that fits your particular situation.

So do you need a consumer loan?

Get Approved for personal loan today.

Speak with the Right Financial Advisor

If you have questions about your finances, you can talk to a financial advisor who can review your finances and help you reach your goals (whether it is making more money, paying off debt, investing, buying a house, planning for retirement, saving, etc). Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goals, get started now.

The post What Is A Consumer Loan? appeared first on GrowthRapidly.

Source: growthrapidly.com