By Jeffrey Taylor
I recently read a newspaper article that car loans are
stretching to 7 years and longer. Why is this? Because most car
shoppers want to get into the car they want and have a monthly
payment in their budget. The dealer knows you are a payment
buyer and will do anything to sell you that car.
When you walk onto the car dealers lot the salesperson after
making small talk will ask, what type of monthly payment are you
looking for. In view of the fact that most car shoppers are
payment oriented the salesperson needs a number to work with. He
will never discuss the actual selling price of the car because
that does not allow him to work the payment numbers in his
favor. When he comes back with the payment you agree on, check
the length of the loan. If you need a 6+ year loan to get the
payment you need, you are probably getting in over your head. A
lot of things can happen in six years, marriage, children,
divorce, job transfers, layoffs, promotions, injuries. Try to
purchase something that allows 2-4 years on the loan. DO NOT
TEST DRIVE VEHICLES YOU CAN'T AFFORD AND THEN STRETCH OUT THE
LOAN TERM SO YOU CAN! Stretching out the years will lower the
payment but it will cost you more over the long run. You are
buying a car not a house, so 3-4 years later when you are ready
for another vehicle you will still owe 2-3 more years on your 4
year old vehicle. Scary thought, isn't it? Look at it this way.
After the third or fourth year you may want to trade it in for
another car and still owe more on it than it is worth.
Here is the reality. Cars depreciate fast, usually about half
their price in three years. If you take out a 2-4 year loan and
trade it in after 3-4 years you probably have a little equity in
your car for a down payment on another one. If you are buried in
a 6-8 year loan you still owe a lot more than it is worth and
must roll the balance into a new loan and you now have no equity
in your new car. According to the Power Information Network a
unit of J.D. Powers and Associates, nearly 82 percent of car
loans made in 2007 were 5-6.5 years. That is quite a large
number of people buried in their car. If you are one of the very
few people that will actually keep your car that long you still
must consider the excess interest you will pay over the course
of the loan.
Here are some numbers.
A loan for 25,000 dollars at 6 percent over 48 months will cost
you 28,176 dollars. The same loan stretched out to 84 months
will cost you 30,660 dollars. The payment went from 587 dollars
to 306 dollars, but it cost you more over the long haul.
If you are upside-down in your car meaning you owe more on it
than it is worth, be careful. The options are simple; try to
sell it yourself and avoid the wholesale price at the dealer. To
do this you must have cash available to pay off the lien. Or you
can put a larger down payment on your new car to offset the
imbalance. Another way is to look for large cash rebates that
can offset the purchase price of your new car. If none of the
above will work you should consider keeping the car longer until
the negative balance disappears. If you allow the dealer to pay
off your loan and put the negative equity on the selling price
of your new car you will be even further upside down on your new
car and the next time you buy it will be worse. Whenever a
dealer advertises that he will pay off your loan no matter what
you owe, he will but you will pay the difference. Don't be
fooled into thinking he is doing you a big favor. To avoid being
upside down on a new car purchase you should always try to put
at least 20 percent down.
It is plan and simple! Do not get sucked into a long term car
loan to keep your payment low. When the dealer brings you the
loan papers at the payment you want, check the length of the
loan. If it is higher than 48 months don’t sign it. When the
dealer asks you what payment you are looking for, tell him the
number, but also tell him you do not want a loan over 48 months.
Focus on the selling price of the vehicle and if it is too high,
consider a less expensive new car or a slightly used car that
fits your budget. Another option is to increase your down
payment on the vehicle to bring the payment down. Do not sign
that 6+ year loan because you will regret it. You can find tons
of information about car buying and car loans at
carbuyinghelponline.com
About the Author: Jeffrey Taylor is a car buying consultant and
author of http://CarBuyingHelpOnline.com He has been giving
advice on car buying tips for 11 years. Visit his website
http://www.carbuyinghelponline.com to avoid getting ripped off
on your next new or used car purchase.
Source: http://www.isnare.com
Permanent Link: http://www.isnare.com/?aid=234583&ca=Finances
I recently read a newspaper article that car loans are
stretching to 7 years and longer. Why is this? Because most car
shoppers want to get into the car they want and have a monthly
payment in their budget. The dealer knows you are a payment
buyer and will do anything to sell you that car.
When you walk onto the car dealers lot the salesperson after
making small talk will ask, what type of monthly payment are you
looking for. In view of the fact that most car shoppers are
payment oriented the salesperson needs a number to work with. He
will never discuss the actual selling price of the car because
that does not allow him to work the payment numbers in his
favor. When he comes back with the payment you agree on, check
the length of the loan. If you need a 6+ year loan to get the
payment you need, you are probably getting in over your head. A
lot of things can happen in six years, marriage, children,
divorce, job transfers, layoffs, promotions, injuries. Try to
purchase something that allows 2-4 years on the loan. DO NOT
TEST DRIVE VEHICLES YOU CAN'T AFFORD AND THEN STRETCH OUT THE
LOAN TERM SO YOU CAN! Stretching out the years will lower the
payment but it will cost you more over the long run. You are
buying a car not a house, so 3-4 years later when you are ready
for another vehicle you will still owe 2-3 more years on your 4
year old vehicle. Scary thought, isn't it? Look at it this way.
After the third or fourth year you may want to trade it in for
another car and still owe more on it than it is worth.
Here is the reality. Cars depreciate fast, usually about half
their price in three years. If you take out a 2-4 year loan and
trade it in after 3-4 years you probably have a little equity in
your car for a down payment on another one. If you are buried in
a 6-8 year loan you still owe a lot more than it is worth and
must roll the balance into a new loan and you now have no equity
in your new car. According to the Power Information Network a
unit of J.D. Powers and Associates, nearly 82 percent of car
loans made in 2007 were 5-6.5 years. That is quite a large
number of people buried in their car. If you are one of the very
few people that will actually keep your car that long you still
must consider the excess interest you will pay over the course
of the loan.
Here are some numbers.
A loan for 25,000 dollars at 6 percent over 48 months will cost
you 28,176 dollars. The same loan stretched out to 84 months
will cost you 30,660 dollars. The payment went from 587 dollars
to 306 dollars, but it cost you more over the long haul.
If you are upside-down in your car meaning you owe more on it
than it is worth, be careful. The options are simple; try to
sell it yourself and avoid the wholesale price at the dealer. To
do this you must have cash available to pay off the lien. Or you
can put a larger down payment on your new car to offset the
imbalance. Another way is to look for large cash rebates that
can offset the purchase price of your new car. If none of the
above will work you should consider keeping the car longer until
the negative balance disappears. If you allow the dealer to pay
off your loan and put the negative equity on the selling price
of your new car you will be even further upside down on your new
car and the next time you buy it will be worse. Whenever a
dealer advertises that he will pay off your loan no matter what
you owe, he will but you will pay the difference. Don't be
fooled into thinking he is doing you a big favor. To avoid being
upside down on a new car purchase you should always try to put
at least 20 percent down.
It is plan and simple! Do not get sucked into a long term car
loan to keep your payment low. When the dealer brings you the
loan papers at the payment you want, check the length of the
loan. If it is higher than 48 months don’t sign it. When the
dealer asks you what payment you are looking for, tell him the
number, but also tell him you do not want a loan over 48 months.
Focus on the selling price of the vehicle and if it is too high,
consider a less expensive new car or a slightly used car that
fits your budget. Another option is to increase your down
payment on the vehicle to bring the payment down. Do not sign
that 6+ year loan because you will regret it. You can find tons
of information about car buying and car loans at
carbuyinghelponline.com
About the Author: Jeffrey Taylor is a car buying consultant and
author of http://CarBuyingHelpOnline.com He has been giving
advice on car buying tips for 11 years. Visit his website
http://www.carbuyinghelponline.com to avoid getting ripped off
on your next new or used car purchase.
Source: http://www.isnare.com
Permanent Link: http://www.isnare.com/?aid=234583&ca=Finances
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