The moment you take an auto loan to buy that cheap used Austin car for sale, you will end up paying more than its actual worth and that is true for old as well as new cars. This is referred to as the upside down effect when taking a car loan. Similarly when you think of selling the same car to settle the loan, you will find that it is not an easy task and only leads to more problems.
So the only merit is in going for a real low car loan rate due to the lower depreciation as much of it would have already taken place assuming the car would be purchased within the year. The upside down effect would be much lesser and at the end of the tenure would reflect a better figure as long as the value of the car for resale remains good enough.
Such a loan is also easy to get as the borrowing amount would be lesser than the cost of a new vehicle and since the depreciation has taken place, the exposure of the lender would also be much lesser.

published: 29/03/2010