Long-Term Auto Loans: How to Avoid the Debt Trap

By admin - Last updated: Tuesday, June 20, 2017 - Save & Share - Leave a Comment

3 Reasons You Dont Want a Long-Term Loan, and 6 Tips on How to Avoid Them

Americans are opting for longer and longer car loans. Stretching the payments out allows consumers to lower monthly payments, afford a more expensive car, or roll over an existing loan balance into a new loan. In the fourth quarter of 2016, 32.1 percent of new car loans were for terms of 73 to 84 months, according to credit reporting agency Experian. Some consumers even stretch the length of their new car loans out to 96 months. At the same time, the average new car loan balance hit $30,621.

While extending the length of your auto loan gives you lower monthly payments, it’s a horrible way to buy a car. You can pay thousands more in interest over the life of the loan, limit your ability to buy your next car, and leave yourself financially vulnerable if the vehicle is wrecked or stolen.

It can be even worse if you buy a used car with a long-term auto loan, as you’ll be susceptible to high repair costs while you’re still paying off a car that may not have a lifespan that’s as long as the loan.

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