How Long Should Your Car Loan Be?

When buying a car, most people nowadays are already aware of what monthly payment will fit their budget before making a deal. But, this monthly payment mentality is making car buyers lose track of the total cost of the car and the length of time it will take to pay it off.

Some people are trying to get a good deal with lower interest rates with a reasonable monthly payment. But sometimes the loan has a monthly payment that is too high for them. They end up financing for a longer term even it costs them more.

Having a longer should not be an option for you. Why? Check out the several reasons below:

Higher Interest Costs: The longer you choose to finance your car, of course the longer you have to pay for it. Car loan specialists recommend to have a five-year-loan or shorter term than that if your budget allows it. It is true that the longer monthly payment you have, the lower you have to pay but you also have to consider the fact that the finance charges for the loan that has a longer term is twice compared to the loan with a shorter term.

It is easy to be lured by the appeal  of the lower monthly payment offered by the longer loan but in the long run, you would pay more interest and add the years you have agreed to extend.

Car Fatigue: We love our cars when they’re brand new but years after years, there’ll come a time that we’ll trade them to newer and trendy cars. The average years people usually trade their cars are approximately 5 to 6 years. If you have a loan with a longer term payment, you only have 2 options: either you pay off the balance of the loan into your next car purchase or wait for another year or 2 to buy a new one. That doesn’t sound so good, right? So, it is better if you have a loan with a short term

payment because you will not only get to enjoy the first car you have chosen for years but also you will be able to sell the first car of your choice right away.

Negative Equity: A new car typically depreciates in its first year. At the beginning of a car loan, the buyer owes more than the car is worth and it will get worse if the buyer hasn’t given a large enough down payment.

The time it takes you to owe less than the car is worth and build equity will vary based on the car you bought and how much down payment you have given. But you have to consider also that the longer your car loan, the longer it will take you to build equity. When you have no car equity, you can’t sell the car right away when time comes that you need some money. The buyer will only pay you what the car is worth and not what you owe on it. You will be stuck with the balance of the loan.

Low Resale Value: Resale value is another reason why you should not choose to have longer loan payment terms. The younger the car, the more desirable and valuable it gets in the marketplace. Meaning, a 5-year-old car is sellable than a 7-year-old car. A dealership will give you more money for the younger car and it is a great candidate for the certified pre-owned process in which the dealer will have a more valuable car to sell. This is contrast to the older car.

To sum it all, if you are going to buy a new car and the monthly payments are too high for you, choose another car that has a lower value and within your budget range. Once you have an idea of what you can afford, make sure you get pre-approved before heading out to the dealer. If you are considering in buying a used-car, interest rates are a bit higher but since it costs less, there’s less to finance and payments will be lower.

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Interested in applying for a car loan? Get the best deal from Fox Car Loans, the best bank car loan which offers you a hassle-free transaction. Call us at 1300 665 906 now!

News Resource: http://foxcarloans.com.au/long-car-loan