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Posted: 6:00 a.m. Monday, April 1, 2013

Avoid getting over your head in a car loan

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new york car show photo
new york car show

One of the surprises about the Great Recession was that Americans were more likely to default on their home mortgage than on their car loan.  But now, delinquencies on car loans are just about the lowest they've ever been -- down to a fraction of 1%. This is virtually unprecedented, and is really good news.

But as a result of these declining delinquencies, banks are feeling more confident--and perhaps getting a little too lenient-- in issuing car loans. Bankrate claims that the average car payment right now is about $600/month. This makes Clark nervous. Not everyone can afford that -- it takes a lot of breathing space out of the typical budget.

Right now, car sales are booming. 50% more new cars per month are being sold than in recent years.

So think carefully before taking on a car loan. Will that car payment add a real burden to your life? Be honest. You may be tired of your car -- but is it really necessary to replace it?  Cars are so much more reliable than they used to be.

If you truly want or need to replace your vehicle, and don't want the added burden of a loan, go used.  And not necessarily in that "sweet spot" of the 2-3 year old car that still feels new...consider a five, or even ten-year old car, if your budget dictates it. In many cases, you are going to get years of transportation at a small fraction of the original value. If it's an old enough car your ad valorem taxes will be insignificant. And what's best--no monthly car payment to chain you down!

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