This is definitely a sign of the times. People want to replace their old cars, the economy is struggling to recover, and automakers want to get their cars sold. So, instead of getting the traditional 5-year car loan, people are stretching their buying power by extending their loans to 6, 8, or even 10 years.
This article in the LA Times shows this trend is not unusual anymore: http://www.latimes.com/business/autos/la-fi-hy-autos-car-mortgage-20130712,0,5121096.story
There are advantages to a longer loan—lower payments, which free up more cash for a family. But, if that is the reason you are doing it, it may be a bad decision. Even if the interest rate is low, you’ll be paying for years more, and, many times, a lot more in interest, especially if you only qualify for a high interest rate loan.
But, the problem is that, because of a car’s depreciation, you’ll be paying for years after the car value likely will below the loan amount. Also, you will have the car payment longer. So, by trying to free up cash in the short run, you will be making the payments much longer.
And, if you are extending the loan out just to afford a more expensive car, ask yourself if it is really worth it to pay for 1 or 2 more years for the more expensive car or brand of car? If you have to ask the question, you should look at some less expensive cars.
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Daniel J. Winter
Offices in Chicago, Gurnee, Oak Lawn, and Skokie, Illinois.