Auto Loan Debt
Auto Loan Debt - Good Debt or Bad Debt?
Depending on what part of the country you live in, a car may or may not be a necessity. Whether necessary or not, cars are the single biggest indicator of economic status and ego, and people very often will borrow large sums of money in order to appear successful to their peers, or even to appear successful to people that they don't even know.
Are Auto Loans Good or Bad Debt
Auto loan are pretty much considered bad debt. Remember that this is from a debt management perspective, not necessarily a credit management perspective. It can look very good on your credit report to have an auto loan showing that you've paid diligently and on time. That is definitely a plus. From a debt management perspective though, the debt itself is generally considered bad debt due to depreciation among other factors.
The reason for this is that the average automobile will depreciate 20% the minute you drive it off the lot, and chances are very good that by the time your have paid off your new car loan, it will be worth less than 50% of what you paid for it. Bad Debt is usually defined as debt incurred on a purchase that immediately goes down in value.
If common sense hasn't kicked in yet, you should realize by now that it would be much, much better to own your car outright, whether new or used, than to have a nice, brand new ride that's costing you $400 to $700 a month and is depreciating on a daily basis.
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