A car is a big investment, and not everyone can afford the upfront costs of purchasing one. Rather than not buy a car at all – which isn't a practical solution if you're due an upgrade – you can split your payments into more manageable chunks by taking out an auto loan.
An auto loan, or a car loan, is a loan that you take out which pays the upfront costs of a vehicle for you. You will then repay your lender based on the agreed terms, with added interest. Most loans will be secured by the cost of the vehicle, which means that if you fail to pay it back on time, your vehicle will be used as a form of payment to the lender.
Auto loans allow you to purchase a vehicle when you may otherwise have been unable to. Here are 6 reasons to take out an auto loan for your next car purchase:
1. Competitive interest rates
Because there are so many auto loan options to choose from, interest rates tend to be fairly low, especially if you have a good credit score. Take a look at loan comparison sites to make sure you get the best deal.
2. Flexibility with payments
Obviously, when you enter a loan agreement, it's with the expectation that you'll make your payments on time, but if you do find yourself in unexpected financial difficulty, there are plenty of auto loan lenders who will allow you to temporarily postpone a payment until you're ready to pay it.
3. Options for low credit scores
If you've got a low credit score, don't be quick to assume you won't be able to take out an auto loan. Take a look at the Best Bad Credit Auto Loans (Top 6 Lenders of 2019) if you have bad credit but need to finance a new car.
4. Improves your credit score
If you can pay your auto loan off as agreed, as with other loans and credit cards, it'll go on your credit report and improve your credit score. Some people take out auto loans with the sole purpose of enhancing their credit score, because providing you stick to the rules, it's a guarantee.
5. May include additional perks
This is where it pays to do your research: some auto loan providers will offer additional perks if you choose to take a loan out with them, like free servicing and road free tax. Ask about possible sign-up incentives during your initial conversation with a loan company.
6. For bigger purchases
When you're purchasing a car outright, you might not have the finances to really splash the cash on a newer or more expensive model. Taking out an auto loan allows you to pay your vehicle off over an extended period of time, so you won't feel such a big hole in your pocket from one entire payment. This will enable you to make a more expensive purchase should you wish to.