There has been national outrage over the student loan debt but where is the outrage over the national car loan debt? The very same young people are going into debt purchasing a new or used vehicle that are going into debt furthering their education. Obviously higher education should be made affordable for everyone but starting your life out (in your 20s) with any kind of debt should be frowned upon.
Personally, I have never taken out a car loan and I probably never will. Why? Well, here are just a few reasons:
It is unnecessary debt.
Unless you have no public transportation available and no family or friends to drive you around in between cars, a car loan is really an unnecessary debt. If you can get by in between cars and save up enough for your next, you are better off. When my last car finally broke down I was able to get rides from family members until I’d saved $2,000 for the next car. I bought the next vehicle privately, as I had done the first. I didn’t need to pull out any kind of loan or unnecessary debt in order to get into a new car. Obviously there were times I wish I didn’t have to rely on others for a ride but it was well worth not having to pay money back on an auto loan for years to come.
Cars depreciate in value.
Once you drive your car off the lot it depreciates in value. You may have taken out a $20,000 loan for your new vehicle but once you drive your vehicle off the lot it loses value. Within the first year of you owning your brand new $20,000 car it will lose almost $4,000 of its value.
It is not a good investment.
Because it depreciates in value so much it is not a good investment. When you take a look at car loan debt and student loan debt, I would take student loan debt every time. This is because with student loan debt you have invested time and money into your education but you will likely see a return in the form of a career and money to be able to support yourself. A car loan will not give you anything in return other than a vehicle that is depreciating in value.
You’re lucky if it lasts as long as your loan.
In addition to the value of the car not sticking, your car likely won’t last the entire duration of the car loan. The average car loan is made for four to six years. If you purchase a lightly used car with a six-year loan payback there is a good chance that you will not still have your vehicle at the end of the six years and if you do it will likely be on its last legs. For example, my mother took a car loan out and paid it off in January of this year. Three months later her transmission went. At the same time I paid $1,000 for a van that lasted me four years and only quit because I took it on an eight-hour road trip through the mountains.
The monthly payments can be crippling.
Lastly, I will never take out a car loan because the payments themselves can be crippling. Think about the monthly payments that you already have to make. I pay for car insurance, rent, renter’s insurance, electricity, WiFi, water, my student loan payment, the gym and food. Do you really want to add up to a $500 car payment to that? I know I don’t.
Do you have a car loan? What do you think about the author’s reasons for not wanting one?
Photo: Flickr: Sandro Ferrarese