Why would I need a car loan?
I'm only 15, but I'm already thinking ahead to buying my first car. Why would I ever be in need of a loan?
At the risk of stating the obvious, cars are expensive! At the time of this writing, the average price of a new car is over $37,000. Even one of the least expensive new cars, the Chevrolet Sonic, costs over $16,000. Used cars can be much cheaper, but some are priced similarly to new cars. Since most of us don’t have that kind of cash lying around the house, if you need a car, chances are you will need a loan to buy it.
The good news is that car loans are widely available and can be made even if your credit isn’t great. Car loans are “secured” by the car you buy. This provides some comfort for the lender so that if you fail to make your payments, they can repossess your car and sell it to get their money back.
Lenders make their money by charging interest on loans. The price they charge (the interest rate) is a function of the risk presented by the borrower. A borrower with good or excellent credit is a lower risk and would likely be offered a lower interest rate. A borrower with poor or no credit is a higher risk. If they are offered a loan at all, the interest rate will be higher.
Did this answer help you?
Ask us a question by email and we will respond within a few days.
Have a different question?
You can meet us at our office and discuss the details of your question.
Read advice from car experts at Jerry
Browse by topics
What others are asking
Why is my car loan payoff amount different from my current balance?
Shouldn't these two figures be the same? This is confusing; can you clear this up for me?
Apr 07, 2021
What penalties will I face for being ticketed for lapsed car insurance?
I got ticketed for lapsed car insurance and the police officer said I'd have to pay a fee. I've since reinstated my policy. Will I face any other penalties, like points on my driving record?
Mar 12, 2021
Why do dealers want to know how you're going to pay for a new car?
Why do dealers ask how I'm going to pay for a new car? I've bought several cars from dealers and I always get asked how I'm going to pay for the car.
Jul 03, 2021