Unfortunately, cars don’t last forever, and when it comes time to drive your chugging car into the lot and exchange it for a new one, that usually means it’s time to get an auto loan.
When you meet with the financial office at the dealership, they’ll give you your loan options, typically in 24, 36, 48, and 72 month increments. In extreme cases, there will also be 84 month car loans or more.
Though most choose not to extend their loan longer than four years, last year’s reports show that more and more Americans are choosing long-term car loans over traditional lengths.
According to USA Today, 25 percent of auto loans in 2014 were 73 months or longer. In the four years previous, only 10 percent of car loans were that long. This sudden spike in long-term car loans has brought the average car loan term to 66 months.
Long-term auto loans make monthly payments shorter, but they’re full of other issues. Some project that this new trend in auto loans will be harmful to the auto industry, and others recognize the way it’s hurting consumers now with greater overall interest paid.
With the damage long term loans can do to both the economy and car buyers, why are so many American’s joining the trend? Despite the negatives, there are a few benefits that make it seem like a good choice in the now.
To begin with, those who opt for longer term car loans, have significantly lowered monthly payments, increasing their cash flow. It’s much easier to balance those payments for that dream car if your payment hardly makes a dent in your budget.
Easier Option Following Accidents
Lenders are always wary of offering loans to those with a history of car accidents. According to Clark Law Firm in New Jersey who specializes in dealing with auto incidents, those subjected to car accidents experience significantly increased financial burdens, including higher insurance payments, medical bills, and even psychological treatments. Each of these expenses makes the risk even greater for lenders. Long term loans with lowered payments reduce the risk of borrowers being unable to pay their bills.
Built Up Credit
The structure of long term auto loans is ideal for building credit. It establishes a pattern of payments that borrowers can actually meet, which indicates credit worthiness over time. Those who have struggled with their credit in the past may find that long-term auto loans are the answer to their credit woes.
These are just some of the reasons that long term auto loans have risen in popularity over the past year. It’s a very attractive option, but it’s not always the best option. This post from Bankrate swears that long term loans can be pricey in the long run and aren’t worth the risk, but those strapped for money now may find that a long term loan is the answer.
[Image from Andy_BB/Flickr]