When you get a car loan, it means that you can buy your car “now” and pay for it later. Sounds great, right? It is. If handled properly, getting a car loan can be an extremely smart financial decision. If handled improperly, however, this simple transaction could end up putting you thousands of dollars in debt for the next several years. On the surface, it seems like you can’t lose with a car loan, but there are some factors to consider. The following is a list of pros and cons related specifically to getting a car loan to purchase your vehicle. If you’re thinking about getting approved for financing on your new set of wheels, this information may be helpful to you.

Pros of taking out a car loan

It allows you to purchase a vehicle that you otherwise couldn’t afford.

Because the cost of your car loan (plus interest and fees) are spread out over a period of a few years, you’ll be able to consider a wider range of cars – including ones that you previously thought you couldn’t afford.

It gives you time to “shop around” for the best interest rate and loan terms.

Getting approved for financing on a car that you want gives you the time to go out, find the right car at the best price, and consider all your options. This includes having time to check into loan terms – whether it’s looking for the most affordable interest rate or considering what all your loan’s terms will be (such as how long is your loan, what is the monthly payment amount, etc.). If you’d like to shop around online, you can assess your Driva online car finance options and find your best eligible rates. 

Ability to improve your credit score

If you decide to get a loan in order to purchase your vehicle, this will benefit your credit score because it shows that you are able to responsibly maintain payments for borrowed money. By improving your credit score, it’ll be easier to get approved for future loans, whether that’s for another car or for a house.

Cons of taking out a car loan

You will end up paying more overall for your car than if you paid in cash.

People often assume that they are able to get a better deal on the price of their car when they are approved for financing instead of just paying in cash, but it is very rare that this is the case. The truth is, most dealerships make a bigger profit when you finance a car because you end up paying a lot in interest charges. If there’s no way that you can pay for your car in cash, then using financing to buy your vehicle is the next best option.

Can hurt your credit score if payments are not on time or if loan terms are not met

Approximately 20% of new car loans go into default within the first year. If you don’t make your monthly payment or if you miss payments, this will reflect poorly on your credit score – which could end up hurting you in the future. For example, if your credit score goes down, it may be harder for you to get approved for financing other things in the future, like a house.