The Inherent Hazards of the Too-Long Loan

Driver in New CarIt can be tempting to purchase a new vehicle that’s out of your league pricewise by accepting an overly long payment term to get lower monthly payments. But buyer beware: What’s costing you less in the short term will end up costing a lot more in the long term—and, when all is said and done, you can be left on the losing end.

Savvy car shoppers buy vehicles that will appreciate over time—and take the lease road for automobile deals that will depreciate in value.

Loaning Pains

Loan terms seem to be growing longer all the time these days, with many new car loan lengths ranging between 73 months to as long as 84 months. Don’t get rooked by a seemingly attractive offer to get a lower monthly payment by paying for a vehicle over a seven-year period. If you do, you may not like the consequences down the road.

The total amount of interest you pay is always going to be higher as you add years to your loan—it’s just a mathematical fact. Consumers often fixate on how much their monthly payment is going to be and fail to see the big picture of their purchase—and they pay for it in payment longevity and mounting interest costs.

It is unwise to accept financing terms that will still have you making payments long after your vehicle’s warranty has ended. After a few years have passed, whatever value your vehicle still has left is likely to be consumed by repair costs, and you may find yourself cursing the car you so excitedly signed on the dotted line for just a few years ago.

The Solution

Drivers shopping for new cars are well-advised to lease rather than buy. Opting for a lease agreement can not only keep monthly payments low, but it enables the consumer to drive a new car every few years rather than pouring money into repairing a now-older vehicle after a few years have passed.

Leasing can pay off in other ways, too. Many lease agreements nowadays include maintenance for the vehicle, leaving the driver to pay depreciation only.

Still Set On Buying?

If you’re determined to buy a vehicle rather than lease, purchasing a used automobile is the best financial option. You can still end up with a newer-model car and retain the prerogative to modify it to your heart’s content, unfettered by lease parameters. But you won’t be struck down by the depreciation, interest and repair costs, and other downfalls that can ultimately come with purchasing a new car.

November 27, 2015 by Jamie Rettig