I hated the thought of getting a car loan, but it was a huge relief
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Here’s What: Taking a Loan Isn’t Necessarily a Bad Thing
Six months ago, my husband Daniel and I realized that we needed to replace our car soon, which would mean taking out a car loan.
Bad news, right? First of all, it’s a really terrible time to buy a car. Vehicles are costing an arm and a leg right now thanks to the scarcity of computer chips, and decent used cars are selling for way more than I expected. It’s a jungle out there.
Second, none of us had ever taken out a car loan before. I bought my parents’ car from them when I went off to college; as the youngest of a large extended family, Daniel has always had access to a solid second-hand item. We were lucky, but navigating the process of buying a car for the first time in this market was a bit like starting your first job as a bartender on a Friday night in Vegas.
Our car was broken down, but I refused to take the plunge and buy a replacement just yet. I did not want to take out car credit.
I thought that if we saved aggressively enough, we could take out a very small loan or even pay cash. (Yes, for some reason I thought we could go from $0 to over $20,000 in cash savings in less than a year. I was deliriously determined.) We sold our second car, saved every extra dollar, and even started selling our plasma to put money into the car fund.
Finally, I gave in. Daniel found a car at a relatively reasonable price, and after a satisfactory test drive, we applied for a loan. We put down a large down payment and borrowed just over $9,000.
And you know what? I did not feel overwhelmed by a financial burden. In fact, I couldn’t believe how relieved I felt.
We put over $1,000 a month for seven months in our car fund. Now our monthly car loan payments are $270, which is far less than what we had set aside each month. We also got an amazingly low rate of 1.99% thanks to our high credit ratings, decent down payment amount and relatively short repayment term (we chose three years instead of five years ).
Taking out a large loan is scary, and it’s a decision that should be approached with caution. But that doesn’t mean it’s the wrong choice. In fact, if I had bitten the bullet a few months earlier, we would still have a monthly car payment that was less than the amount we had put into a savings account. I would have saved myself a lot of stress – and we wouldn’t have driven a car that died in the middle of a roundabout last month.
– Laura Grace Tarpley, Editor of Banking & Mortgages
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