Buying a car is, by nature, a bad investment. As soon as you drive it off the lot it begins to depreciate, and you’ll never be able to sell it for more than you paid for it. The sad truth is, though, that buying a care is a part of life. The only thing you can do is try to get the best financial deal possible that will have the least impact on your financial future. This comes by avoiding long-term auto loans.
In the last quarter of 2014, the average length of a car loan in America was 67 months. That’s five-and-a-half years, and that’s only the average. Nearly 25% of people had loans lasting between 73 and 84 months.
A long-term loan may look great up front; it reduces the size of your monthly payments and could bring a slightly more expensive car into your price range. But over the long term, the deal stinks. You’ll end up paying hundreds or even thousands of dollars more in interest for those few extra dollars of savings each month.
It’s not just your long-term expenditures that are affected. Borrowers with long-term car loans may be less eligible to qualify for a mortgage. A new report from RealtyTrac shows it’s not necessarily large down payments that are keeping people from buying homes. It’s the fact that they have too much existing debt to qualify for a mortgage. Where does that debt come from? Student loans and, you guessed it, auto loans. You’ll keep your overall debt down by sticking to short-term car loans and paying them off as fast as possible.
Savvy financial consumers will not take an auto loan lasting longer than 36 months. This may mean downgrading to a less expensive model or taking on a larger monthly payment, but you’ll get out of debt faster and end up spending much less on something that only costs you money over the course of its lifespan.