Bad Decision: Long-Term Car Finance Loans

billzhao · 发表于 2009-9-15 12:35

Tell me if this makes any sense: Car owners in the United States keep their vehicles for an average of 5.5 years, yet, an increasing number of new car buyers - 45% to be exact - choose to finance their new vehicles for 60 months or more. That's five years...so by the time they pay off the car, it's time for a new one! Credit unions and financing entities around the country even offer car finance loans for 7 or 8 years!

This new popularity of long-term auto loans means that consumers are getting in debt longer, paying more for the same car and selling it before they've paid it off. This can have some very negative financial results, including being upside-down in your financing - owing more on your car than it is worth, so you are either stuck with it or lose money.

Long-term auto loans can be an enticing trap. After all, this kind of financing allows new car buyers to make lower monthly payments and drive nicer cars. However, stretching your auto loan for more than 36 months is not a wise financial decision and here are three simple reasons why:

1.Money talks - If you buy a new car priced at $27,800, financed with an average 9.5% interest rate, for 36 months you will pay a total of $4,260 dollars in interest alone, so it ends up costing you $32,000. Now, take that same car and finance it for 60 months. You'll pay $7,238 in interest, raising the total price tag to $35,000. There you have it - the exact same car costs you $7,200 more than the original price and $3,000 more than the 36-month financed option. Keep in mind that long-term financing may also mean that you pay higher interest rates.

2.Depreciation - Not only do you pay more for the car, but by the time you're done paying for it, depreciation will have taken a big chunk out of its value. That same car with an initial $27,800 price tag will be worth only $11,802 by the time your 60-month car finance loan is up. If you decide to sell it, you'll get less than a third of the money you paid for it.

3.New Car Warranty - Most new car warranties provide coverage for 3 or 4 years, which means that halfway through paying your loan, you'd be left unprotected. On top of monthly payments, you may be stuck paying for expensive repairs. Worse, if you get in an accident and total your car, the insurance company won't cover the loan, and you could be stuck paying for the car - and a new one.

The Federal Deposit Insurance Corporation (FDIC) recommends that you be careful about how much and how long you finance your car for. Remember that every time you finance a car, the financing entity holds a lien on the auto title, which gives them the legal right to take it back if you don't make payments.

Keep in mind that just because you can afford the monthly payment doesn't mean it's the right purchase for you, and maybe you'll need to ask yourself if you're buying more car than you can afford. If you need help making the decision, check out our tips in How You Can Fight Rising Interest Rates For Car Finance Loans, and make sure you avoid the most common auto financing mistakes.

Finally, make sure you research your car finance loan options before you shop for that new car. Banks and credit unions aren't your only options - request a no obligation auto loan quote to see what kind of financing you are eligible for

billzhao · 发表于 2009-9-15 12:36

偶然读到这篇文章，感觉学到了不少东西。拿过来给大家共享

cyz0116 · 发表于 2009-9-16 08:49

thanks,Billzhao. i really like the articles you have recommended for us!

billzhao · 发表于 2009-9-16 10:27

thanks,Billzhao. i really like the articles you have recommended for us!
' O/ a! ^. _1 kcyz0116 发表于 2009-9-16 08:49

I am flattered. Thanks a lot!

kingsnake · 发表于 2009-9-16 12:11

But don't forget that by the end of five years, you still get your old car as downpayment for a another new car.

teaandwine · 发表于 2009-9-16 21:03

9.5% interest rate!!! That's crazy, what about 60 monthes at 0%, the bank pays for the inflation

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