It was reported in the first quarter of 2015 that on an average loan durations offered for purchase of used cars were over 5 years. Furthermore, the findings also stated that loan terms provided for new car purchases were between 6 to 7 years. Just until a few years back auto loans with such longer terms were a rare phenomenon. But recently such propositions have become a commonplace. Nevertheless, if you are thinking of applying for a car loan, it could be vital for you to decide whether you should actually opt for a car loan with a super long term.
It is needless to say that interest rates offered in the market are at historic lows prompting potential buyers to borrow money in buying even expensive new cars with loans that have significantly longer durations. This is in over and above their existing debts. Currently, lenders are providing auto loans at lower interest rates, longer terms and manageable monthly payments to enable borrowers get new cars. But does such a proposition make any sense? Well, it all depends on borrower’s financial situation. After all, taking on additional debt for buying fancier car might not be a bad idea for some people!
It’s not necessary that getting an auto loan with a super long term is always a bad idea. This could be particularly true for some specific situations. First and foremost, interest rates offered in the market are low or borrower has qualified for a zero percent car financing deal. Secondly, borrower intends to keep the vehicle for 6 or 7 years or even longer. But when opting for long term car loan, one must know that car values depreciate fast with passing time and to that effect, vehicle will lose all value at the end of the loan term. Besides, older cars may have lower gas efficiency or may need repairs and maintenance frequently.
If a borrower manages to qualify for the lowest interest rate then securing a long term auto loan can make sense. Besides, the monthly car instalments could be sustainable all along the life of the loan. However, financial situations change pretty quickly at times and if that is the case, care needs to be taken that one doesn’t end up spending more on his vehicle than its actual worth. Instead it could be better if borrower sells the car and settles remaining dues with his lender.
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