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Should I get a car loan?
I just graduated from college with about $10,000 in student loan debt. All the jobs I’ve applied to will require me to have a car to get to work. I have a few grand saved up to get a car and am thinking about taking out a loan to cover the rest. Is that a bad idea, though? Should I get a car loan or should I pay cash for a used car?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Deciding whether or not to get a
car loan
is a huge decision for a young person, but don’t stress. Since you already have some money saved up, even if you decide not to finance a vehicle, you still have a backup plan.To decide whether you should get a car loan, you need to weigh the pros and cons of buying a used vehicle in cash versus taking out a loan for something nicer.
Pros of taking out a loan:
- Can purchase a more reliable car
- The vehicle may still be under warranty
- You can get the car you really want
- You can build your credit while paying back the loan
Cons of taking out a loan:
- You’ll have a payment due each month for years
- You run the risk of buying more car than you can afford
- Interest rates can be expensive for younger buyers or those with limited credit history
To help inform your decision, use the 20/4/10 rule. This rule states that you should:
- Be able to afford a down payment of 20%
- Get a loan that’s no longer than four years, or 48 months
- Spend 10% or less of your pre-tax earnings on paying back the loan each year
Weighing the drawbacks and advantages should point you in the right direction, while the above rule should prevent you from overpaying.
Whether you decide to finance a new car or buy a used car, remember that you still need to budget for insurance.
Jerry
is the best way to find a great deal on the coverage you need.As a licensed insurance broker, Jerry’s app allows you to compare rates from over 50 insurers. Choose a policy and price you like and Jerry will cancel your old insurance, secure your new plan, and take care of the paperwork so you don’t have to.
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- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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