Most drivers have a budget in mind when shopping for a new car, and that’s the figure they aim for during negotiations. However, the monthly budget makes some buyers lose sight of the big picture: the car’s total cost, and the time it takes to pay off Auto Loans in Hollidaysburg PA. Since 2002, car loan terms have grown to an average of five years, and some are even longer. There’s no real benefit to having a longer-term loan, and some of the reasons to decline such an offer are listed below.
High Interest
The longer a vehicle is financed, the greater the amount of interest, the base rate and periodic finance charges. Five years is the maximum car buyers should aim for, even less if it’s practical. For 2014, the average rate for a five-year loan was 2.4%, with a monthly payment just over $525 and $1861 in finance charges over the life of the loan.
Negative Equity
New cars lose about 22% of their value in the first year. At the start of a loan, the buyer usually owes more than the vehicle is worth and the situation gets worse if the buyer doesn’t make a substantial down payment.
The Novelty Wears Off
Everyone loves a brand new car, but the newness will wear away eventually. The average trade-in is only six years old; if a person has a 6-year loan and wants a new vehicle, they will never get a break from making that monthly payment.
Diminished Resale Value
Resale values are another reason to stay away from long-term car loans. At the five-year mark, cars lose over 53% of their value, but a car of that age will still qualify for dealer CPO (certified pre-owned) programs.
Long-Term Loan Alternatives
If someone wants a new vehicle but can’t afford the monthly payment on a five-year loan, they may be shopping above their budget. Here, used cars are a good alternative; interest rates are somewhat higher, but payments are lower because the cars aren’t as expensive.
While it’s vital to have a budget in place when shopping for Auto Loans Hollidaysburg PA, the monthly payment should not be the only measurement of a suitable loan from ARC Federal Credit Union. By looking at all the figures in a sales contract, the buyer will become fully aware of what they’re getting into.
