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96 Month Car Loans

July 29th, 2008 by Kenneth Long

Just when we though we saw the worst of lender behavior through the subprime mortgage meltdown, a new low has been reached. Lenders are now beginning to offer vehicle financing for 96 months.

What this Means

In case you are reaching for a calculator, that’s 8 years just to pay off a new car loan. Imagine what you will be doing in 8 years. How old will you be? Will you be driving your car or pushing it? Will you have children? Will your children have children?

Lenders and finance managers claim that new cars last longer, and that it makes sense to spread out the payments across the useful life of the vehicle. They see it as a way to let you get more car today than you might otherwise be able to afford. However, not all new cars are the same, and some will undoubtedly fall apart far sooner than that.

Upside Down

If you have ever been upside down in a car loan, you know that there are only 3 choices:

  1. Keep making the payments, even if you can no longer drive the car.
  2. Face a repossession.
  3. Roll the debt over into a new, even worse car loan.

What you are creating for yourself with a 96 month loan is a guaranteed negative equity situation. This means that you are stuck with that car, and you cannot sell it without somehow paying off the rest of the loan balance. Do you really intend to keep that car, and be able to drive it for the next 8 years?

The best approaches you can take to financing your next vehicle include:

  1. Buy within your means. What good is driving a fancy car if everyone knows you flip burgers for a living? They all know you are overspending.
  2. Limit financing terms to a max of 5 years (60 months) on a new car, and never more than 4 years (48 months) for a used car.
  3. Refuse high interest rate loans. That finance manager gets a kickback if you pay more than you have to. You can arrange your own financing through a credit union with lower interest and less down payment than most big banks require.
  4. Drive that old clunker a few more months. Saving money for a down payment can reduce your car payments, loan term and even your interest rate in some cases.

Most importantly, refuse to accept a 96 month loan for any vehicle. Otherwise, you might pay for a Lexus while driving a Corolla!

This entry was posted on Tuesday, July 29th, 2008 at 3:27 pm and is filed under Saving and Investing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 responses about “96 Month Car Loans”

  1. LJ said:

    Good review. Is there an alternative to leasing when wanting to own a more expensive vehicle for a smaller payment

  2. Kenneth Long said:

    Yes there is an alternative. It requires the use of a substantial down payment. That way, you can get smaller payments or a shorter repayment term.

    Otherwise, a smaller payment by extending the term is a terrific recipe for disaster via negative equity.

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