 |
| nammastecar.com |
Article thanks to Sloan Schrage and ksl.com. Links provided:
June 29, 2018 SALT LAKE CITY — Here’s one surefire way to give your financial advisor heartburn — take out a car loan of seven or even eight years. That’s what more and more car buyers are doing to get lower monthly payments.
In its recent state of auto financing report, Experian says the average loan for a new car has reached 69 months.
“You’re just asking for long-term problems,” says certified financial planner Shane Stewart of Deseret Mutual.
Stewart says, yes, you’ll lower your monthly payment. You’ll also pay a lot more in interest over time.
Let’s say you buy a new car at $34,600. That is the current average price people pay for a new car, according to Edmunds.com. At 5 percent interest, you’ll pay $4,576 in interest over five years. Add two years, you will pay $6,478 in interest; a difference of $1,902.
“Typically, if you’re stretching it to a seven or eight loan, you’re trying to get a more expensive vehicle that might be a vehicle you can’t afford,” says Stewart. “You might want to check your motives for that and see if that’s what you really need to do.”
Shara Jessop, president of Smedley Financial, is no fan either.
“I hate that they’re doing longer-term loans,” says Jessop. “I think younger people get caught up in that early, and then it’s harder to get out.”
New car values typically drop 25 to 30 percent in the first year. You could owe more than your car is worth years after the new car smell fades.
“You’re paying on something where it’s no longer as exciting as it was when you first got it,” says Jessop. “Think about it. Over a few years, a car becomes a part of normal life. The excitement is gone. But, those long-term loans, you’re still paying on them for a long time.”
You could lose thousands if you have to sell your car early or if it gets totaled in a crash because you would be upside down in your loan, owing more than it is worth.
Both Jessop and Stewart say a much better alternative to buying a new car on a long-term loan is to buy one used.
“Many times you can buy a used car that’s a year or two old,” explains Stewart, “It’s already had a lot of the depreciation taken out of it. As long as it’s in great shape, a used car might be a great alternative.”
“Lease buy backs are great,” says Jessop. “They’ve been maintained and typically there’s low mileage.”
If you’re buying a new car, the general consensus from experts is to go in with a 20 percent down payment. Also, aim for a monthly payment that does not exceed 10 percent of your gross income.”
“Anything from three to five years is a good range for an auto loan,” says Stewart. “If you can’t afford the car you’re looking at in that range, well then, you should rethink that.”
“We’re all human. We all want something new,” Jessop says. “The trick is delayed gratification. Treat yourself right, financially, and make a good decision you won’t regret.”
Dealers often use lower monthly payments to sell people on higher-end models. Knowing the total loan amount and how much money you can spend beforehand, helps keep you out of a long-term loan.
No comments:
Post a Comment