Loan Economics And Used Cars

So you are considering a loan; but what is a loan? Investopedia defines a loan as, “The act of giving money, property or other material goods to another party in exchange for future repayment of the principal amount along with interest or other finance charges. A loan may be for a specific, one-time amount or can be available as open-ended credit up to a specified ceiling amount.”

The next question is what type of loan do you want? Also, what kind of item do you want to buy with the loan?  According to, let’s assume that you want to purchase a new car; there’s already a problem with that statement. This is totally up to you, but I would never personally buy a new car. The thought is that if you purchase a new car you won’t have the same mechanical issues that you may have with a used car. And that I suppose, could make the purchase of a used car more of an issue than owning a new car. This is something that you have to weigh for yourself.

Although I don’t know the statistics, I would assume that buying a used car from a reputable dealership wouldn’t be much more harmful than taking a loan out to buying a new car. I mean, your new car is going to be used in a couple of years anyway, and by then you may be ready to sell it. In purchasing a new car, you automatically take on depreciation. The reason I would never buy a brand new car is because they are way too expensive. I actually got this advice from Charles J Givens; in his book he talks extensively about why he would never buy a new car. says, “The very minute that you drive a new car off a dealer’s lot, it loses value. That’s just a fact of life.” Their chart shows that a car depreciates 9% the second you take it off the lot, and then it depreciates 31% after the first 2 years of ownership. So if you buy a $20,000 car, the second you drive it off the lot it is now worth $18,200. That was the most expensive drive home you will probably ever take at $1,800! And after two years your car has depreciated $6,200. You will be selling it, if you are lucky for $13,800. In the next two years your car will depreciate $4000. So there might be some value to buying used.

The moral of the story; when getting a loan for car consider getting a used car. And when the moment comes to get a loan, only consider a low interest rate loan from a credit union.