Long-Term Car Loans: Look Before You Leap

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(NC) When you decide to buy a car, you can usually get a loan from a dealership or financial institution. In either case, it’s important to understand the risks, shop around and negotiate to get the best offer.

Dealerships and lenders may propose to lower your loan payments so you can stay within your budget.

You should know that this also means extending the loan period. Some dealerships will give you as much as seven or eight years to pay off the car. Any car loan that is longer than 60 months (five years) is considered to be a long-term loan.

Are there any advantages to long-term car loans?

The only advantage is that your regular payments will be lower. However, this might encourage you to purchase a car that is beyond your means and more than what you need.

Some disadvantages of long-term car loans:

• They significantly affect the total cost of the car.

The longer the loan, the more you will pay in interest.

• Cars quickly lose their value. This begins as soon as they leave the dealership and continues as the years go by. By the end of the first year, your car may be worth 25 per cent less than what you paid for it.

• You could be facing negative equity, that is, a situation where the amount of your loan is greater than the value of your car. This means you will lose money if your car is worth less than the amount you owe on your loan when you sell it or trade it in.

Before buying a car, it is important to focus on the total cost of the car, not just the monthly payments.

Find more information at Canada.ca/money.