After borrowing student debt, I did not want to borrow money for anything else I needed in life. I was able to overcome this aversion to debt when buying a home, and I took out a mortgage to purchase a condo several years ago. More recently, I purchased a car, and I had an extreme aversion to borrowing money to purchase this vehicle. However, car loans are different from student loans, and student debt borrowers should not let student debt get in the way of borrowing loans to purchase a car of fulfill other life goals.
Interest Rates
One of the biggest reasons why car loans are different from student loans is that car loans often have lower interest rates than student loans. Student loans can have interest rates around seven or eight percent, which is pretty high. Although some private student loans may have lower interest rates, it is common for student debt to have high interest rates, which can be very onerous on student debt borrowers.
However, car loans usually have lower interest rates than student loans. The interest rate a borrower may be able to obtain on student debt varies from person to person. This because a person’s income, debt history, and other factors can all impact the interest rate that is offered a borrower for a car loan. However, it is not uncommon for car loan interest rates to be half or a third of student loan interest rates, patricianly because a car loan is secured by the car itself while student loans do not have any kind of collateral. This makes car loans much less burdensome on borrowers than student loans and student debt borrowers should not be so averse to borrowing car loans.
Maturity Date
Another way how car loans are different from student loans is with the maturity date. The standard repayment plan for student debt is usually ten years, although this can be extended to as much as fifteen years, twenty years, or longer. This is because students may borrow significant sums of money to attend college and graduate school in many circumstances.
However, less money usually needs to be borrowed for a car loan. This is because borrowers usually pay a deposit for part of the loan when they borrow a car loan. Moreover, borrowers usually need to borrow tens of thousands of dollars for a car loan instead of the additional money it takes to pay for a car. As a result, individuals can usually pay off a car loan in far less time than it takes to pay off student loans and as a result, car loans are usually easier to handle than student debt.
Flexibility
In addition, car loans are different from student debt in the flexibility borrowers have when dealing with this debt. For instance, most of the time an individual borrowers a car loan, they are never really in debt so long as the car has more value than the amount of the loan. As such, an individual may choose to sell the car because they no longer need a vehicle, are traveling, or for any other purpose. They can then pay off the remaining balance of the debt, and be debt free after they do so. In addition, car loans can be refinanced just like any other debt, so if better terms are available, a borrower can refinance the debt and obtain better terms.
No Tax Benefits
A negative way how car loans are different from student debt is that car loans often do not have tax benefits. As many student debt borrowers know from firsthand experience, student loan interest is often tax-deductible. This benefit is usually only available to people who make less than a certain amount of money, but this advantage can be an important benefit to student debt borrowers. People who borrow a car loan usually cannot deduct the amount they pay in interest from their taxes. Of course, vehicles that are use for business purposes may have their own tax benefits, but there are ordinarily less tax benefits for car loans than student debt.
Need
Car loans are also different from student debt in the need that they satisfy for people. Numerous people need a car, either because of the area in which they live or because of their job. Of course, many people can lease a car, but leasing a vehicle is often not as economical as buying a car, since this is an investment that can pay off over the years. Obtaining an education is also important to people and is critical to pursuing certain types of vocations. However, not everyone needs to obtain a given educational credential in order to live their lives, and people routinely obtain educational credentials that may not be necessary. However, many people do not have as much discretion about car loans and they should not feel as bad about car loans as they might feel about student debt.
Paying off student loans almost traumatized me from borrowing debt because I had a difficult time repaying my student loans and I thought that all debt was similar. However, car loans are different from student loans and borrowers should not let their experiences with student debt get in the way of borrowing money to achieve a variety of life goals such as buying a car.