|LONGER-TERM LOAN CONSIDERATIONS|
|Posted on: Jul. 10, 2017 in Car Loans|
Borrowing money almost always comes at a cost. Lenders charge interest on the amount you borrow – that’s how they make their money. The higher the interest rate, the more expensive your loan is going to cost you in the long run. But that’s not the only way that borrowing can get expensive. A long-term loan can raise that overall price more than you’d imagine.
But this isn’t the only reason you should shy away from extending your loan term. Before we jump in, let’s talk about how long loan terms really are. Back in the 1970s, when loans as we know them became more popular, the average term was just under three years. By the early 2000s, this had stretched out closer to five years, or 60 months. Many experts recommended, and some still do, that the best length is 48 to 60 months. However, due in part to the recent recession, loan terms have been extended in an effort to lower monthly costs and make new and used cars more affordable.
These days, more and more cars are being financed for up to 84 months. That’s 7 years!
As we mentioned before, the longer the term, the more interest you’ll pay. This is especially concerning for borrowers with less than perfect credit, because their interest rates are typically higher. That means a double-whammy of higher overall interest charges.
Let’s look at some of the other downsides to this new trend.
Sometimes you must take a longer-term loan to make things work out. But if you can avoid it, you’re probably better off.
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