Meredith Havens looking Volkswagen on February 22, 2013, at a dealership in Richardson, Texas. In the fourth quarter of 2012, the average new car loan was 65 months.
By Kraut white tree, today registered users
Car loans have become longer.
Six and seven-year loans are an increasingly popular choice - and some lenders are even routes you these payments for eight years. These long-term loans allow the buyer to buy the vehicle, what you want to with the monthly payments that they afford can. But it also means that they are more numbers as a whole.
The average new car loan was 65 months according to Experian information solutions in the fourth quarter of 2012. This is a new record.
"Is it getting ridiculous,", said Anthony Giorgianni, Associate Finance editor for consumer reports financial advisor. "With a long-term loan numbers you more interest than you pay the loan way over a long period." And term loans tend to have higher interest rates."
Consumer reports money lab ran the numbers on the purchase of a new car, the cost of $30.520, assuming a deposit of 10 per cent. They used CapitalOne.com loans starting in mid-October 2012.
With a 48-month loan, the rate had 3.39 percent and the monthly payment $659. The longer 72 months loan would to a higher interest rate-3, 99 percent but the monthly payment would be just $462 significantly lower.
Consider the total cost: borrow $34.702 for the shorter loan, $36.339 for longer. This is a difference of $1.637.
Jack Gillis, author of the car-book-2013, advises buyers to look at the big picture, not just the monthly payment.
"A car a bad investment, so you want to reduce the cost of ownership as far as possible," Gillis said. "The best way to do this is to get a loan, as you can possibly afford as behind a term. As I see it, is not longer than 48 months loans."
Dealers and lenders do not discuss with math, but they say that more loans to serve their customers better.
"The more options people have on their credit card transaction to restructure, the better it is for them", said Bill Himpler, executive Vice President of the American Association for financial services, the Trade Association for the consumer credit industry.
Low down payments, also you can damage
Interest rates on new car loans were incredibly low for several years, and led the lower down payments.
The experts at Edmunds believe 20 percent is the sweet spot for a down payment, but most car buyers are nowhere. After its analysis of new and used car buying, the average deposit was 2011 11 percent in the year.
"The faster the better it is for you, you pay off the car", said Ronald Montoya with Edmunds.
This is because the cars very quickly lose value when they are new. With a small deposit, you will get not enough equity in the vehicle. In other words, you can debt is more about the car than it is worth.
"If something happens in the first year or two the car - it is in an accident or stolen - you can money from his own pocket for the lenders themselves debt something after you get the insurance payout."
This means that the head will be. The longer the loan should the upside-down period longer, especially if there is a low down payment. If you sell or want to exchange the car for some reason if you get still upside down, you not enough for your existing loan pay off.
The bottom line
The shorter the loan and the larger the down payment, the less cost you to own this vehicle. It reduces the risk that you'll lose money from early sale or Exchange, accident or theft.
Not on the monthly payment to fix; That's what the dealer wants to do. Check the total cost of the business during the term of the loan.
"Our rule of thumb: buy a car with a loan of a maximum of 48 months and the car to at least as long as it takes to keep that pay off a loan" Giorgianni said at consumer reports. "If you are going to get more than four years to make the payments, car lower cost where you need them, get a used car or you get to."
It is also important bought for the loan comparison shop, so how do you for the car.
"Before you walk into the dealership, make sure you know which prize you receive from your bank or Credit Union, so you know that the rate at which the trader is better" Gillis advised.