is borrowing worth it?

I'm thinking of getting a loan, should I do it?

     It really depends on what your priorities and what your budget is. Nowadays car loans stretch for as long as 10 years, which will result in tremendous losses in interest payments to lending companies. A loan taken out for 10,000$ for 5 years at interest rate of 8% can run up a few thousand dollars in interest, depending on monthly payment and compounding period.

How can I minimize my losses in interest payments?

     The easiest way to do so is to find a lender with lowest APY you can find and put down as much down payment as you can comfortable afford to. If you are not able to afford a large down payment right away, yet you need to buy the car right now, you can simply try to pay more than what your minimum monthly payment is to reduce the life of the loan. Make sure you check with lending institution that they allow pre-payment and overpayment before you sign the contract. This can save you hundreds to thousands of dollars in the long run.

     If it is at all possible consider getting as much money from relatives as you can get and putting it down on the car, then paying your relatives over a certain period of time. It might be difficult financially to repay them in a relatively short period of time, however, the money you save on interest can sometimes be worth the effort. It might also be wise to dip into your savings account, rather than waste thousands in interest (if the car is relatively new).

Advantages to taking out a loan:

• Being able to buy a newer car, thus likely saving on repair costs if your current car is rather old and prone to breaking.

• Being able to buy what you want, and repay it in monthly payments.

• Having a loan builds up your credit history, which will help you get lower interest rates in future loans.

Disadvantages:

• Having another monthly payment which must be made or credit rating will be negatively affected and fees added to your loan.

• Easy to get carried away and borrow more than you can afford to repay in comfortable manner.

• Mandatory full coverage insurance with minimum lending institution specified coverage and deductible amounts.

Conclusion:

     You have to carefully consider your budget on per-month basis and evaluate how much full coverage insurance with lender's minimum specified coverage is going to cost for the car you're trying to buy on monthly basis. Calculate how much interest you're going to pay over the course of the loan and if it's worth for you, go for it, if not, either take out smaller amount or save up some more cash to put down to save money in the long run.