Long term auto loans are on the rise, but are more people now looking to the future or are they simply preoccupied with the present?
In general, the duration of an auto loans reflects the average life expectancy of the vehicle in question. Understandably, consumers do not wish to be still paying off a loan for their car when the car itself has already lived out its useful life. However, given the increasing popularity of car loans with longer terms, that is now becoming a worrying possibility for many consumers. So, why is it that prospective car owners are now looking further into the future?
Well, despite a steadily improving U.S. economy, many people are still struggling financially – in many cases, bogged down by loan debt that they took out to cover their expenses during the recession. As such, the prospect of financing the purchase of a new car is a daunting one for many. The only option that many consumers have, if they wish to be able to meet the monthly payments on an auto loan, is to extend the life of the loan so as to lower the payments.
To offer an example, a consumer that’s looking at an auto loan of around $25,000 can opt for a loan duration of 48 months (4 years) or 72 months (6 years). The latter is obviously a long-term commitment that many will perhaps shy away from, yet it can save the average consumer around $200 in monthly payments. Given the longer lives of modern cars, there is an argument that a longer auto loan isn’t such a bad idea. However, longer loans will always mean that it will take you longer to pay the loan off and will pay more in total interest.