Car Loans

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We’ve talked a lot about loans on this blog – cars, home, personal, you name it. When used responsibly loans are a great way to attain something in the immediate, while paying for it in pre-defined, manageable amounts over time. This last point is key as prior to taking out a loan the lender will look at the borrower’s ability to pay which is based on their credit history plus the future earning potential. You might look at your situation and think, “based on what I earn and what I can continue earning I can definitely afford a $500 monthly car payment over the next 3 years.” This might be true in your head and mind, but if you’ve defaulted on loans in the past and have a spotty employment history, getting a loan at a decent interest rate might be rough.

At the end of the day it is the lender that decides but knowing what you can reasonably pay is up to you. When it comes to a car, lots of folks take out car loans mainly because a car depreciates faster than nearly any other good on the market. Paying for example $45,000 in cash for a car might not make a lot of sense for some people as they can use a good chunk of that in other ways that might be of better use in the short-term.

Car loans originated in 1919, a concept that was attributed to none other than General Motors (GM). Due to growing demand for cars post World War I, GM established offices in 5 U.S. cities to address said demand and the following year opened an office in the U.K. GM’s early success was notable, and as they tend to do, other companies followed suit. For the first time ever an auto manufacturer could expand their business and add a revenue source in addition to car sales – loans.

Technically speaking, when a borrower takes out a loan, he or she gains the rights to drive the car and takes possession of the automobile’s title. The interest on the loan depends on the borrower’s credit rating, if the car is new or used, and finally, the price of the car. In general, when buying a new car, the interest rate will be lower as compared to the rate on a used car. If the price of a car goes up, the interest rate will also typically drop, and the bulk of the monthly payment will go toward paying down the principle while the rest will be interest charges.

As with most things, obtaining a loan online has become increasingly easy. The main advantage is engaging in comparative shopping is easy because you can get a range of lender quotes at the click of a mouse. Online loan companies are also much cheaper than their brick and mortar counterparts because they have no overhead fees to deal with. In 2020, getting a loan online is likely the easiest route to take and the most efficient. Be true to yourself and what you can pay however and you shouldn’t have an issue over the long-term.