Smart Car

According to the Federal Reserve, the three biggest debts for the average American are mortgages, student loans and auto loans. As Marketwatch points out, of those three, only auto loans give back declining value. A mortgage gives you a house (the value of which, on average, has increased historically at about the rate of inflation) and student loan gives you an education that can lead to a good-paying career. Yet a new car loses 20 percent of its value during the first year and 10 percent every year after that. Knowing this, here are some ways to avoid a car loan that completely destroys your budget.

Look at the Twos

One easy way to avoid overspending on a loan is to shop around for a vehicle that is already two years old. This way you’re getting a relatively low-use vehicle and someone else is paying for a big chunk of the depreciation.

Consider Time

When considering an auto loan, know what you’re getting into regarding its length. Sure, a nine year loan would keep monthly payments low, but overall you’ll be paying a lot more than a shorter-term loan. That’s because sometimes longer loans have higher interest rates than shorter ones. Also, the longer you have a loan, the more interest you’re paying. Instead of just picking the longest loan, try applying for the shortest loan you can afford. Experts suggest getting a loan for around four years.

Avoid Dealership Financing

Instead of getting a loan from a big bank or dealership, try using a credit union or local bank. They typically offer auto loan interest rates as much as 2 percent lower than big banks.

Get Reliable

When buying a new car, research its reliability. From there, purchase the most reliable car within your budget. The longer you keep your car, the more value you’ll gain from it.