When you're in the market for a new car, you have several options for paying for it. You could take the money out of your savings account, charge your credit card, use the equity in your home or use one of the available types of auto loans. While all of these are good ways to afford a car, taking out an auto loan offers several benefits that warrant a closer look.
Keep More Money in Savings
When you take out an auto loan, you don't have to deplete your savings to cover the entire cost of your purchase. The loan allows you to pay off a little bit of your new vehicle each month while leaving the bulk of your money sitting in a savings account where it accumulates interest. If you're concerned about the size of the loan you're signing, you can take some of your savings money and put it towards the cost of the vehicle.
Take Advantage of Interest Rates
If you qualify for an auto loan interest rate that is lower than the interest rate on your savings account, from a financial standpoint, it makes sense to take the loan and keep your money in your savings account. In this scenario, the interest money from your bank account is more than the interest you pay on your auto loan, which means you're coming out ahead financially.
Build Up Your Credit Score
A final benefit of taking out auto loans is that they offer a great way for you to build up your credit score. When you make regular on-time payments on an installment loan, you're showing that you're a good credit risk. Being a good credit risk raises your credit score and allows you to get better interest rates in the future.
There are many ways you can pay for a new automobile, and all of them have their pros and cons. Auto loans are a great way to get the car you want while still staying on a budget. Your local auto dealer has the knowledge and experience to help you through the loan process when you're ready.
