Getting a loan will help you pay for the car upfront, while you pay the lender back in smaller increments, usually over the course of a few years. Your interest rate may depend on several things, including your credit score and income, but the average right now is about 5.04 percent for a three-year loan to buy a used car, according to Bankrate.
Once you nail down how much you can spend on a car and the terms of the loan, you can determine how much you can afford each month. Be sure to cover all your bases in determining this amount, including:
- Loan payments
- Insurance fees
- Registration costs
- Gas
- Maintenance, such as oil changes
- Parking
Taking out a loan and paying it back consistently on time will help boost your credit score and give you an advantage next time you need to take out a loan, whether it’s for a new car or something else, like a mortgage.
However, if you fail to budget correctly and can’t make the loan payments every month, your credit can become damaged quickly, causing you more problems in the future.