Should I buy a car on credit? What are the pros and cons of car loans?

Hello, due to the lack of a suitable job, I got a job as a taxi driver. For a car you have to pay money to a taxi company every month. I was thinking about buying a car on credit. Tell us about the pros and cons of a car loan and whether it is worth buying a car on credit in this situation. Anonymously.

Hello, car loans are a very popular banking product. According to analytical agencies, more than 40% of the total number of cars purchased over the past year was purchased on credit. In addition, the growth of such purchases is projected.

We recommend reading our material on the topic - "How to take a car on credit, is it possible to get a car loan for a used and new car without a down payment, CASCO, certificates, with poor CI".

Let's take a closer look at the advantages and disadvantages of such a loan.

1. The main advantages of car loans

Banks vying offer the most favorable conditions, advertising all the advantages and benefits of buying a car on credit. The front side of the coin looks very attractive.

So, the advantages of obtaining a car loan include:

1. Quick car purchase even without accumulation. The car is bought as soon as possible, and you need to pay gradually. This circumstance pushes people who need a long time to accumulate an amount equal to the cost of the car. The reason is significant for those who buy a car for work, you can use the car now, and pay later.
2. Lending conditions are quite favorable. Interest rates are significantly lower than most other loan products. Only mortgage rates are lower.
3. Easy loan processing. The package of documents for obtaining a loan is minimal. The loan itself is available to all able-bodied citizens with a stable confirmed income. It is also relevant that many banks practice cooperation with car dealerships and you can get a loan at the same time as choosing a car you like. There are also ways to get a car loan online, for this you will need to submit an application and obtain approval from the bank. About how to get it and where to apply for a car loan online, we wrote in a separate article.
4. Loan repayments. The term, duration of the loan is selected individually and ranges from an average of one to five years. The longer the loan term, the lower the monthly payments. For citizens with a low income, this is a very important condition.
5. Cars purchased on credit must have a CASCO insurance policy. Insurance is issued simultaneously with the purchase and is included in the cost of the loan, it is convenient. Insurance is issued in favor of the bank and if an insured event arises (force majeure is a common thing), then the loan will be paid to the bank at the expense of the insurance company. What is CASCO insurance and how to calculate the cost of the policy, you can read the article here.
6. State support for car loans. In support of domestic car manufacturers, the state is implementing a number of programs that make car loans more accessible to the public. They consist in a reduced interest rate, or compensation for part of the cost of the car. You can take advantage of benefits when buying a new car and observing a number of conditions. The state has launched several such programs. For example, for families with two or more children - “Family Car”, for motorists who buy a car for the first time - “First Car”. We also recommend that you read our publication about preferential car loans with state support.

The popularity of targeted loans for the purchase of a car speaks for itself of the obvious advantages of this type of lending. But are they so undeniable?

2. The main disadvantages of car loans

Often, the disadvantages of a car loan become apparent after the contract is completed. So that the joy of buying a car is not overshadowed, it is worth understanding the possible risks in advance.

So, the disadvantages of car loans are:

1. First of all it significant rise in price of the car. Overpayment on a loan over 5 years may be about 50% of the initial cost. In addition, compulsory hull insurance increases the amount of overpayment by another order of magnitude. And the car itself loses value over time, even an hour after purchase, its price drops by an average of 10%.
2. In case of loss of income or other financial difficulties, there is risk of becoming insolvent. There is a possibility of losing both the car and the already paid part of the money, since the car remains the property of the bank until the full repayment of the debt.
3. Inability to sell a car until final settlement with a bank. Even if the bank allows the sale, the proceeds for the car will be an order of magnitude lower than the money spent.
4. The burden on the budget increases significantly. Not all future car owners when applying for a loan take into account the costs of maintaining a car. Sometimes a lack of money comes as an unexpected surprise.
5. CASCO credit car insurance can be much more expensivethan for cars bought with your own funds. Usually the insurance company is selected by the bank. And the buyer is deprived of the opportunity to choose an insurance company with more favorable conditions.
6. Not all potential buyers are on an equal footing with the bank. Typically, students, retirees, those who do not have documents confirming income, those who have worked for less than six months are denied a loan. If the loan is approved, then the requirements for it are more stringent. Here we advise you to read the article - “How and where to get a loan without inquiries and guarantors without failure”
7. Increased interest rates when buying a car without a down payment, when applying for a long-term loan, the usual policy of banks.

As you can see, not all conditions of car loans are as good as they might seem at the beginning. The reverse side of the coin loses significantly to the front.

3. Conclusion

Buy or not a car on credit? Everyone should answer this question independently. After weighing the pros and cons, assessing the risks and the need for an urgent purchase of a car. Perhaps the only case when a car loan is justified is the purchase of a vehicle for work or business. It was not in vain that such a banking product as leasing was created. Many successful entrepreneurs use car leasing, issuing it for both individuals and legal entities.

Important! If buying a car is able to cover the cost of a loan and generate income, then the purchase will be justified. In all other cases, it is better to refuse a loan!

We hope that Rich Pro magazine was able to give you all the answers to your questions. We wish you good luck and success in all your endeavors!

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