A Driver’s Market: Lengthier Terms on Car Loans

Buying a car has become more expensive. That’s the harsh reality. The average price of a car has increased from $28,000 in 2008 to $31,000—a 12% increase. With real incomes falling one would assume that buying a car would be more difficult for customers and sales would fall. However the exact opposite is happening.

Americans bought 1.5 million new cars in August 2013 taking advantage of a combination of low interest rates and loans with a longer maturity. If you have a great credit score you now have the option of availing even a 97-month loan. While such a loan term is stillrare the average loan term today is 65 months, and the market is readily offering 73 and 84-month loans to you as a customer.

The Best Time to Buy a Car is Now.

There’s probably not been a better time to buy a new car in recent American history. Banks are ready to lend to people with bad credit through subprime loans, because the resale value of the current vehicles is high due to lower depreciation, and delinquency rates on car loans are very low. All of this combined makes it a buyer’s market but once economic conditions improve, and interest rates rise, you may not get another opportunity to get such terms.

You could opt for a used car as a financially safer option but you must ask yourself what you are sacrificing in terms of value for money. A new car may be higher priced but it comes with state-of-the-art features, especially in terms of safety and passenger comfort.

Valid concerns about a longer payback period are another matter. Based on your financial status a longer term may well increase risks. It may also be a disincentive to replace your car as it may take you longer to get to a point where the debt is lesser than the price you would realize. Therefore the same principles apply as to a shorter duration loan, for example trying to put down as large a down payment as one can to minimize the monthly payment.

Assuming you will stick with your new car for at least five years before thinking of a change then “73 is the new 60”. With a 73-month loan you can have a lower monthly payout and sell at a decent enough resale price to plough the money back into a new car after five years.

If buying an “economy” segment car is the thing for you, then you can opt for an even lower term than 73 months by choosing a car in the sub-$25,000 range.

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