We all know that the longer the term on a loan, the more interest you are going to be paying on it. Banks want to be compensated for the increased risk of a longer loan through a higher interest rate to boot. According to Jennifer Waters in a post in Marketwatch, although the monthly payments are cheaper, the end result of added interest is repulsive at best. Even with excellent credit today, if you were to take out a 96 month car loan at a 5% interest rate, you will end up paying $6,000 in interest on a vehicle that originally cost $31,000. You say, "Grant that's interesting and all, but who is going to take out a 96 month car loan?". Good question, and one that i asked myself. Typically today car loans are around 60 months, or five years. When we take into account that in just five years the average price of a vehicle has gone up $3,000, we can see how many would want to possibly extend the duration of the loan in order for more liquidity on a month to month basis. More and more we are seeing 72,84, and yes, even 96 month loans.
This article is not groundbreaking in content, but it is a very good thing for us as "soon-to-be grads" to be reminded of. Give it a read and let me know your thoughts.
http://www.marketwatch.com/story/96-month-car-loans-wreck-your-wallet-2013-04-12
2 comments:
Grant, well-written post and makes a soon to be graduate think of short vs. long term loans. I would never have imagined loans, especially for cars, extending as long as 96 months.
Grant,
This is actually the first time I have seen anyone mention a 96 month car loan and I can see why those who choose that route are looking for more liquidity on a month to month basis but I cannot imagine paying a car off for that amount of time. I would like to see how many people actually own the same car for 8 years!
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