A loan that lasts over 60 months is generally considered as an extended or long-term loan. Some experts suggest that an auto financing loan lasting more than 5 years should be carefully considered. With the passage of time, auto loans have been offered in longer timeframes, which in some cases, can make it easier on your overall finances. If you are thinking of signing up for an extended car loan, please consider the benefits as well as the disadvantages.
When opting for a long-term auto loan, it is important to consider both rational and less rational reasons. People often pay more attention to how much they have to pay monthly or weekly rather than the total amount of financing. Long-term car loans can help you lower your monthly payments but, at the same time, you can sometimes end up paying higher interest rates and a lot more than the actual purchase price of the vehicle.Advantages of long-term car loans
Low monthly payments is the main advantage you can achieve by signing an extended auto loan. It is important to realize the inability to make car payments can lead to bad credit score and vehicle repossession. If your monthly income is low, going for a long auto loan can be a feasible option. Most importantly, buy a vehicle that you can afford.
Disadvantages of extended car loans
One of the major disadvantages of long-term car loans is that you sometimes have to pay higher interest rates. In addition, owing more than what your car is actually worth is certainly a big disadvantage. Moreover, you will be buying gap insurance to manage the deficit between the worth of your car and what you owe. All of these disadvantages suggest that long-term auto loans will make you pay more overall for a new car purchase.
If your financial situation doesn’t allow you to pay for a vehicle in 60 months or less, the vehicle is probably out of your reach. Therefore, make wise decisions and proceed with caution. It is always recommended to pay more in down payments in order to shorten your loan term.
A vehicle is a depreciating asset. A recent report points out the fact that a new car loses 11% of its value the moment it leaves the lot. During the next five years, the car can lose up to 25% of its value. This means you wouldn’t be able to conclude a long-term loan as quickly as your vehicle depreciates.
Getting an extended car loan certainly comes with risks for borrowers. Therefore, make well-informed decisions considering your current and expected financial situation in the future.
About Find My Auto
Find My Auto helps you get your desired vehicle at terms that suit your financial situation. From low interest rates to bad credit approval, we facilitate and make auto financing easy for you. If you want to get a quick car loan approval in Canada, fill out our application form and start the process right now!