3 Risks Associated with Car Loans
Car loans are becoming a huge trend these days since people are in need of transport and their income does not allow them to buy a car for the full amount. Statistics have shown that car loans are also becoming risky and people are struggling to pay their car loans.
This is normally because most people fail to look at all aspects of the loan before stepping into it. Also, there are a few risks associated with auto loans that are inevitable, and they are inflicted upon you no matter how many precautionary steps you take.
1. Decrease in The Worth of Your Car
When you take out a car loan, your car may be worth $50,000. However, the worth of a car decreases as soon as it leaves the Car showroom or garage. The time periods for paying the loan is either 3, 5 or 7 years. This is a long period,and at this time, the price of your car keeps depreciating.
By the time you are done with paying your loan, the car is not even worth half the price you bought it for. Thus, this car cannot act as an asset of yours. If you go out to sell it, it will sell for a minimal amount that would not be enough to upgrade your car or get a newer model.
2. Your Loan Balance Maybe Higher Than the Car’s Value
Your vehicle and house are two assets that can be used in those times of need when you lose your job, or there is any financial shortcoming. In case of a car loan, this may prove to be troublesome. For anyone who has loaned the car for seven years, you pay a mere 12% of the total amount in the first year.
However, the price of the car had dropped significantly at this time. So, you cannot sell your car to compensate for your financial issues since it is likely that the worth of your car may not even be enough to pay the outstanding loan. Also, you may not want to drive the same car for sevenyears, or your preferences and needs may change.
Still, you cannot sell your car as its value will not be enough to cover the cost of newer model or even pay the loan for the existing one.
3. You Are Paying Thousands of Extra Dollars
A car loan comes with thehigh-interest rate. This depends on your credit score. If you have a good credit score, you can manage to get a lower interest rate. Despite that, you are still paying more for the car than its actual amount.
For example, if a car if 50,000, you are buying it for 70,000 with interest included. This cost is coming out of your monthly income, and if for some reason, your monthly financial cycle is disturbed, it can cause problems. Thus, you need to consider all these things before opting for a car loan.