Used Car Auto Loans: 3 Pros and Cons

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January 27, 2012

When purchasing a used car, many consumers take out used car auto loans. These loans can come from a number of different providers, including local banks, credit unions, auto manufacturers, or the dealerships themselves. As with anything, the decision to utilize used car financing has advantages and disadvantages. The following are a couple of the pros and cons:


  • The buyer doesn't have to pay the entire balance upfront - It is very rare when a consumer is able to buy a vehicle and pay off the entire amount at the time of purchase. Taking out a used car loan allows consumers to have access to the vehicle they need and/or want while paying the balance over time.
  • It builds credit- For those who use them responsibly and make their payments on time, a used car auto loan can be a good way to build credit for many consumers. A strong payment history increases an individual's credit score, which is vital to obtaining competitive future mortgage and auto interest rates.
  • Owning vs. leasing - As compared to leasing (another option many consumers consider), taking out a loan allows the individual to make payments towards vehicle ownership. Leasing, conversely, is comparable to renting the vehicle from the manufacturer.


  • It's another monthly payment - The average person has a variety of financial obligations that are required to be paid each month. When factoring in payments for rent/mortgage, credit cards, plus any other student or personal loans, a car payment is more money going out the door every 30 days. Avoiding this additional payment could relieve a significant amount of financial burden for many consumers.
  • Higher interest rates - When comparing interest rates against other common loans (for example, mortgage and new car loans), used car loan rates are typically higher. This higher interest rate directly translates into a higher monthly payment for the consumer.
  • Depreciation - Vehicles are some of the fastest-depreciating assets consumers can buy. Many times, the vehicle loses value quicker than the loan is paid off, resulting in a car that's worth less than what is owed on it.

Buyers shopping for a used car should consider the pros and cons mentioned above prior to making the decision to take out a used car auto loan.   


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