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Car Loan Terms

Trend To Longer Loan Term Makes Leasing An Even Better Deal!

July 7, 2017

Today’s car buyers are attracted to larger, more expensive vehicles with lots of features and optional equipment. Unfortunately, average incomes are not keeping pace with these vehicle price increases. This is driving the movement to financing these ever more expensive vehicles for longer and longer loan terms.

According to a recent study by car-shopping site Edmunds, the average financing loan terms has hit an all-time high of 69.3 months – that’s nearly six years of payments, and that’s just the average! Some buyers are signing up for 84-month financing – a full seven years of payments on the same car!

The average amount financed is also up significantly, to another new high of $30,945. The average monthly payment has also hit a new peak at $517. What is the average car buyer on a budget supposed to do?

Leasing Is A Much Better Choice Than Long-Term Financing

Before you consider signing a long-term finance contract for six or seven years, look at all the advantages of leasing a new car, both right now and as you drive into the future:

Leasing Costs You Much Less Per Month

With a lease, you only pay for the part of the car you are using. That’s the first three years of its life in the usual-length lease. After that, it’s not your problem – or your financial obligation! You make lower payments, keep the rest in your pocket, and enjoy your three years of driving – then walk away, scot-free!

Leasing Gives You A Car That’s Always Under Warranty – No Surprise Repair Costs!

These days, owning a car after its warranty is over can be a big gamble. There are many, many very sophisticated (and expensive to replace) electronic components throughout today’s high-tech vehicles. Driver assistance technologies, infotainment systems, and even engine computers can fail and cost you big bucks to replace if you are out of warranty. That’s something to think about if you finance a car for a six or seven year term – you will be totally unprotected for three or more years!

You Won’t Go “Underwater” On Your Loan Terms

Many of today’s buyers who finance for six or seven years don’t really intend to keep their car until the end of the loan term. They are very likely to want to trade that car in on something new after three or four years. But they are in for a nasty surprise!

Because of the way these loans are structured, it takes a long time for the vehicle to be worth more than the loan’s payoff balance. That’s when the shock sets in – after three or four years of payments, your car is worth less than the loan payoff amount. This is what “being underwater” means. It is a very bad situation to be in.

When you are “underwater,” you have to borrow even more money on the next car loan to make yourself whole on the current one. So now you are carrying even more debt, making payments on not only your new car, but also the piece of the old car that wasn’t there when you traded it in. Talk about digging yourself into a hole!

Leasing eliminates this uncertainty about the value of your vehicle. When you sign the lease, the value of the car at the end of the lease is set. Even better, it is not your obligation, since the car belongs to the leasing company, not you. Once again, you just make your monthly payments and walk away at the end. No muss, no fuss, no extra unforeseen debt!