I Need a Car Loan

At this point you have decided that you want a car and that you are going to need to take out a car loan for it. That’s fine, thousands of Americans take out car loans every year, however you should also be aware that a car loan is considered bad debt. Bad debt is any money borrowed to purchase something other than an asset. Bad debt purchases are used for short-term consumption (such as credit card debt and auto loans), which does not increase in value over time (like property). For this reason you should minimize the size of your car loan as much as possible by making sure you have enough to cover a large down payment or by choosing a car well within your means. You should also understand that the true cost of owning a car is more than what you pay the dealer for the car. It also includes:

• Deprecation: The amount a car’s value decreases every year.
• Interest on your loan: What you pay a lender to borrow funds to buy the car.
• Taxes and fees: Including vehicle registration and other state taxes.
• Insurance: Premiums for liability, bodily injury, collision, comprehensive and other required or optional coverage. If you would like to be walked through the process of getting car insurance, see “I Need Car Insurance.”

Other car-related costs:

• Gas
• Maintenance and repairs: Oil changes, touchups, and other upkeep.

Being aware of these costs will help you when you’re calculating how much you can afford to pay for a car and how much you are going to need to take out for your loan.

Make sure to include all of these costs when calculating your monthly loan payment. You don’t want to be surprised by this cost later down the road (pun intended).