— Martez Hinton has his eye on buying a black 2015
Dodge Charger around September, if things work out.
28, who works on an assembly line building Dodge Ram
trucks, hopes that contract talks between the United
Automobile Workers and Fiat Chrysler Automobiles go
smoothly and a strike is avoided. Hinton, who was hired
in 2013 with lower wages under the two-tier system,
would like to see raises, too.
building his savings and aiming to make a down payment
of $10,000 or more for a $33,000 Charger. He doesn’t
want to take out a car loan any longer than 60 months.
longer you have a loan out, the more you end up paying
back," said Hinton. "I really don’t like car
to get your finances back on the road in 2015? The savvy
money says it’s wise to turn away from a trend toward
dragging out car loans for 72 months or 84 months.
40.3 percent of new car loans ranged from 61 months to
72 months in October and November, according to Melinda
Zabritski, senior director of auto finance for Experian.
25.7 percent of new car loans ranged from 73 months to
84 months based on preliminary fourth quarter data.
of the growth has been in the 73-month to 84-month
range, which had been just under 10 percent during the
recession and slightly above that during better days,
according to Experian.
contrast, about 25.1 percent of new car loans ranged in
length from 49 months to 60 months during that time
frame. As for shorter-term new car loans, about 3.7
percent of the market was for 25-month to 36-month car
loans, according to Experian.
average new-car loan was for 66 months, according to
experts predict the trend toward more six-year and
seven-year car loans will continue in 2015 and beyond,
especially as prices go up for SUVs, trucks and cars.
been steadily increasing," Zabritski said. "If
we could all afford to finance vehicles for 36 months,
that would be great. But you’re starting to look at a
car payment like a mortgage payment."
A three-year, $28,000 new car loan at 4.5 percent would
cost $832.91 a month. That payment drops by nearly half
to $444.47 a month on a six-year loan, according to a
calculator at Bankrate.com.
up all interest payments and the overall cost of the car
skyrockets with a longer-term loan. The total interest
payments would be around $4,000 on that six-year new car
loan with a rate of 4.5 percent — compared with nearly
$2,000 on that three-year loan.
likely, the interest rate a consumer would get on a
longer-term car loan would be higher than a shorter-term
rate, as well, driving up overall costs. That’s
because there is an elevated risk of default the longer
the loan term, according to Greg McBride, chief
financial analyst for Bankrate.com.
terms are always a temptation for consumers. So many
people fixate on the monthly payment," said Phillip
Reed, senior consumer advice editor for Edmunds.com.
the longer you take out a car loan, the more chances you’re
taking with your finances.
brings a lot of unnecessary risk into the
equation," said Alec Gutierrez, a senior market
analyst for Kelley Blue Book.
cars last longer than they used to, there’s normal
wear and tear on a car the older it gets. New tires,
brakes, and some significant maintenance are in the
cards the longer you own a car or truck.
Bangs, 45, is leasing his Ford F-150 now but said he
typically wouldn’t want to go longer than 60 months on
a car loan.
out of warranty before you ever get done paying it
off," said Bangs.
be sure, consumers who opt for a longer-term car loan
enjoy smaller monthly payments and may be able to drive
away with a more elegantly designed vehicle with new
will that long-term loan only saddle you with more debt
and let you buy more car than you really can reasonably
afford right now? Would buying a used car or a
lower-priced new make or model be less hazardous for
if you need to sell the car if you lose a job or have
another financial emergency? What if you just don’t
like the car after two or three years of driving it?
longer the car loan, the longer it takes to build equity
in the car.
you have no equity, you cannot sell the car and pay off
the car loan with the proceeds. Buyers pay what they
think the car is worth at the time; not what you owe on
the vehicle. You’d be on the hook for the rest of the
consumers could find themselves in a never-ending cycle
of car loans, if they extend them out too long.
those reasons, some drivers and car experts do not
recommend going more than four years or five years on a
new car loan.
just burdens you down, unless you’ve got payments of
$120," said James Griffin, 31.
ON CAR LOANS
average rate on car loans is 4.07 percent but many car
loan rates are being offered at 3 percent or lower at
banks and credit unions, according to Bankrate.com.
not co-sign for an auto loan. While friends or relatives
might want you to co-sign for the loan to get a lower
interest rate, you’d have to pay off the entire loan
when the person who signs for it defaults, warns
better to research your credit score and calculate the
size of the loan that you could afford before shopping
for a car. Various web sites including Bankrate.com and
Cars.com offer auto loan calculators online for
around for a car loan rate, ideally before you shop for
a car. Some experts say there can be wide differences on
rates offered to the same consumer from various lenders.