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How to Raise Money for Your First Car without Taking Out a Loan

Buying your first car without financial assistance is a dream come true for many millennials. Typical buyers in their twenties or early thirties are already severely indebted due to student loans to afford a car. Vehicle loans can sink borrowers further into debt. Unlike mortgages, vehicle loans may come with less consumer protection and higher interest rates. The ultimate question is, how can a young person afford to buy a car without taking on more debt? Here are several alternatives to expensive auto loans you can consider:

Save Little by Little

The best and least risky way to pay for your first car is to save for it. It may be quite difficult if you have to simultaneously pay a mortgage or bring down student loan debt, however, saving small amounts each month will get you closer to buying your first car without sinking further into debt. There are downsides to this method. Mainly, the average income earner would have to save for months or years until there’s enough cash to cover the price tag of the desired car. The wait is worth it if you want to avoid a nasty interest rate.

Invest to Earn Supplemental Income

You can fast-track saving for a new car by investing and earning supplemental income from your investments. You don’t really need much capital to start. Even $100 is enough to become an investor. There are several approaches you can take to build a lucrative portfolio. If you are comfortable with making risky financial bets, try raising money by day trading low-cost stocks. In case you are averse to this idea, you can invest in company bonds and certificates of deposit for returns that are better guaranteed.

Apply for a HELOC

A HELOC is a home equity line of credit that you borrow against your home if you own one. Popularly known as second mortgages, you can borrow a lump sum to pay for a brand new car. While this is still technically a loan, HELOCs typically tend to have lower interest rates than auto loans. The line of credit requires putting your home up as collateral. That allows more time and fairer conditions to pay back the loan, however, you should be careful to borrow only amounts you can repay if you don’t want to undertake drastically frugal methods in the process.

Consider a Car Credit Card

A credit card doesn’t sound like the ideal financial solution for buying a new car, but it is still a better option than an auto loan. You could apply for a credit card and make sure you only pay for a car. The interest rates will still remain high, but you will have a longer time frame to pay down the debt. Even if credit cards have high interest rates, you will have more protection as a consumer compared to auto loans. Some private auto loans are highly unscrupulous and borrowers may not be allowed fair repayment conditions. You can avoid these unpleasant scenarios by using a credit card instead. If none of the above approaches are workable for you, then consider borrowing money from friends and family to buy a new car. You can repay them later but without the interest rate. It would definitely be in your best interests to borrow without an interest rate attached.