Car Loan Terms Getting Longer
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credit: tomsaint11
In response to the market dip, many automakers are offering longer loan terms. More importantly, many car owners are biting, extending their loans to seven years or longer.
While these new loan terms may seem like a natural and logical response to today’s financial crush, they may be the downfall of many individuals and car companies. Unfortunately, auto analyst Kevin Tynan says that these practices are bubble-inducing, a dangerous factor in today’s economy, when the bubble is already bursting.
And though long loans usually pose no more risk to a lender than a shorter loan, extended loan periods affect a vehicle’s resale value. The average vehicle loses half of its value in the first three years, a time when the vehicle is worth a bit more than the balance of a 5-year loan. With the new loan terms, your car will be worth less than or equal to the balance on your loan, making a trade in and down payment for a new car nearly impossible. In addition to hurting buyers, this will affect the auto industry, causing lower sales.
The moral of the story is to think before you sign that loan contract. It’s tempting because you can afford a nicer car, but in the long run, you’ll probably lose out on this deal.
Tags: car loans | Loans & Borrowing
This entry was posted on Saturday, March 1st, 2008 at 5:03 am and is filed under Loans & Borrowing. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
