The world of credit can be difficult to navigate successfully. If we have too little, we can get rejected for home loans and personal loans on the basis that we haven’t proven our financial responsibility; however, if we have too much, we can get penalized for not living within our means. Of course, credit allows us to make big purchases that we’ve always dreamed of, like a home, holiday or car.

In other words, sometimes credit can be a useful instrument or a great way to obliterate your finances.

When it comes to getting a car loan, the rules are no different. If used responsibly, a car loan can build up your credit, proving to future lenders that you’re a responsible borrower with a great track record. However, you should only take out a car loan under certain conditions, and if any of these circumstances apply to you, do NOT finance your car!

You Have A Poor Credit Score. Are you willing to pay thousands of dollars in interest alone simply because you had a few missed payments in the past? Probably not. This is why you should save up for your next car purchase instead of financing the total cost. If you need a car within the next few weeks and can’t possibly save up the money in time, then make sure you pay off that loan as quickly as possible – otherwise, you’re better off flushing your money down the toilet.

Older cars offer a higher spec for my money. It’s a well known fact that you can get more car for your money if you look at models over 3 years old. However, remember that old cars (regardless of make) tend to break down sooner or later, and that would leave you with a car still to pay for that is currently off the road. Watch out for dealerships that offer cheap financing deals on a possible clunker, especially if the life of the loan goes beyond two years.

It’s An SUV. It’s no top secret that SUVs are quickly falling out of fashion in the auto world. They’re big, clunky and let’s face it – they’re not too easy on the wallet either! Don’t finance an SUV, since you’ll be paying more in interest than what it will be worth in another year or two. Be smart and buy a gas-efficient car; now that’s worth the investment.

Will the Automaker be here in the future. 12 months ago, if somebody said that the most important Automakers will not be here in 2 years time you would have thought they were barking mad. But as the recession tightens in grip across all industries, this has now become a distinct possibility. Consequently, if you are planning to finance a car from one of the vulnerable Automakers, please take into account your warranty is not guaranteed, and thus you could be paying for two loans for the price of one.

Accordingly, do the right thing by saving for a car that is within your means, and avoid financing a car within the current climate – your bank balance will be better off for it.