Strategic Borrowing: 3 Signs a Car Loan Is a Good Investment into Your Future

18 May 2015
 Categories: , Blog

When it comes to borrowing money, you have to be selective. If you don't want to get mired in debt, you need to choose loans that are an investment into your future. This fact is true whether you are buying a house, a car or anything else.

If you are thinking about taking out a car loan, here are three signs it is a positive investment for your long term goals and financial needs:

1. The loan helps you build up credit

The enigma of credit is that you need to prove you are worthy of credit before anyone will lend you money. However, in order to prove you are worthy of credit, you need to borrow money.

In most cases, the best way to sidestep this financial conundrum is by starting with small, relatively easy-to-0btain loans. This includes car loans. If you don't have any credit, getting a car loan will help to build up your credit. In that way, it is an investment into your future as it can help you get mortgages and other financing in the future.

If you already have a well developed credit portfolio, you likely don't need a car loan to help you build up credit.

2. The loan (indirectly) gets you to work or school

Taking out a loan for a vehicle is obviously much different than taking out a loan for something "frivolous" like a pair of shoes. When you take out a car loan for a vehicle that gets you to work or school, you make those things possible. This is because without borrowing the money for the vehicle, you may not have been able to take a job in a certain location or get to the classes you need to get ahead.

3. The loan covers the cost of a car you need

However, when taking out a car loan, you also have to consider if you really need the car. An affordable small car can get you to work just as easily as an expensive sports car. If possible, do not borrow more than you need. A loan that covers what you need is an investment, but a loan that puts you into debt for an overly fancy car is a waste of money.

If you work in sales or consulting and you need a stylish looking car, get that since it's part of your job. However, in all other cases, wait until you can afford a luxury car in cash. Learn more about your car loan options by consulting companies like SMA Finance.