Auto Loans as a Path to Financial Responsibility
For many people, buying a car and obtaining an auto loan is their first major purchase and an introduction to responsible money management habits. Choosing a car you can actually afford, budgeting properly, and making on-time payments each month on your auto loan is key to building a good credit report for future financing needs. Fortunately, there are additional benefits of auto loans that buyers should take into consideration. Here are some of those benefits.
4 Financial Benefits of Auto Loans
1. Build a Positive Credit History
When we apply for an auto loan, credit card, or any other type of financing, our purchasing power is directly related to our credit score. Making on time auto loan payments each month is a way to build or strengthen your credit history, which is important for your future borrowing power.
2. Open Doors to Future Lending Opportunities
When we have a record of paying our debts on time, we become more creditworthy and are given benefits that can save money on future purchases with better lending opportunities. Having a good credit history of on-time payments can open the door to better interest rates and financing terms on everything from mortgages, personal loans, and auto loans in the future.
3. Auto Loans for Debt Consolidation
A savvy way to consolidate debt and lower your monthly payment is to utilize an auto loan for the consolidation of high-interest debts. If you own a vehicle that's less than 10 years old and has equity in it, you may be able to use it as collateral to obtain an auto loan as a means to consolidate debts at a lower interest rate. This is a smart money move because you're actually consolidating the debt into a single, more affordable payment that helps you reduce and better manage your debt.
If you'd like to find out if you qualify for a low-interest rate auto loan for consolidating debts, contact us today!
4. Leveraging Auto Loans for Financial Goals
Making your monthly auto loan payments on time will have a positive effect on your credit score. Building a good credit history allows you to let that score help you meet your financial goals. You’ve worked hard to earn a good credit score, so be sure to leverage it to your benefit. Use this to your advantage by refinancing your auto loan at a lower interest rate. This may save you money on interest charges and may even reduce your loan term.
Considerations When Using Auto Loans Beyond Car Purchases
Although auto loans are made specifically for car purchases, there are occasions where there may be more available loan money than the car costs. This may qualify you for a cash-out refinance of your auto loan. If you've made on-time payments for a few years, but the interest rate is not the best, cash-out refinancing at a lower rate will not only save you money paid on interest, but you may get some extra cash too. For example, if you have paid your auto loan for two years and the car is worth $20,000, with a loan balance of $15,000, your lender may approve a $17,000 auto loan, which leaves you $2,000 cash to pay down other debt. Be aware though that when you refinance your car the terms may change and your payment may increase.
Manage Auto Loan Payments Wisely
Successfully managing your auto loan includes proper budgeting so that you can make payments on time each month. The key to success is to make sure you purchase a car you can afford. Make it a point to consider all of your monthly expenses when obtaining an auto loan. Don’t forget to include gas, insurance, and maintenance of the vehicle. Many times, people are excited to buy a flashy new car that really isn’t in their budget. This will lead to late payments and bad credit ratings. Staying within your monthly payment budget is crucial for maintaining your good credit history and rating.
Get the Most out of Your Auto Loans with Peach State!
New beginnings can happen anytime and anywhere. Whether it’s your first time buying a car or you need a second chance, Peach State is here for you with our Auto Loan programs, designed to fit your needs.
