Seven year car loans are on the rise, and it makes sense as to why this is happening. With the average new car price around $30,000, car buyers have to extend the loan term in order to reasonably afford the most current vehicles the auto industry has to offer.
Nearly everyone needs a car, and for those on a tight budget or with bad credit, the 84 month car loan term seems like the best way to go about achieving that goal. With a lower monthly payment, car ownership becomes a possibility, and makes daily life easier.
But does the longer payment term really make things easier? Or are you just paving the way for disappointment in your financial future?
The Problem with Longer Auto Loans
A decade ago, a 60 month loan term was the accepted maximum term for a car loan by most lenders and buyers. That was because a vehicle's value drops significantly after 5 years (in some cases by as much as 70%). This is also the point at which most cars would begin to have mechanical issues, which would no longer be covered by manufacturer warranties that generally expire at the three year mark.
- Cars don't depreciate in value any slower.
Just because you have a seven year loan, that doesn't mean that your car loses its value at a slower rate. You still lose a quarter of the vehicle's value in the first year, which means that you have a far greater chance of still owing a large amount of money on the loan long after the warranties have expired and problems begin to arise.
- Do you want to make a car payment for almost the entire life of the car?
Even though you are making lower payments, consider this: that car payment will be with you for a long time, and in some cases, longer than you have a working vehicle.
Any way you slice it, you will pay more in the long term than you would by buying a less expensive car with a shorter loan term.
If a long loan term is your only option, you might want to consider making a larger than usual down payment (one that is more than the typical 20%), and even consider refinancing the vehicle once you are in a position to afford higher monthly payments.
Finding the Loan You Can Afford
If you are looking for an affordable auto loan, Auto Credit Express can help you. We have a nationwide network of dealers that work with people in situations like yours every day. Once you complete the simple and fast online application, we can connect you with the dealer nearest you that can help.