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Is your dream car worth it? auto loan 100 months or more?
This is a question that many consumer They’re probably asking themselves as the prices of new and used cars and trucks continue to rise. Auto loans of $100 or more are beginning to appear on lender websites – LOC Credit Union and America Federal Credit Union are examples – promising low monthly payments. budget conscious Buyer.
Eric Kroc, president of Ohio-based financial firm Kroc Capital, said that although the prospect of an affordable monthly payment may be attractive, the long-term commitment that a 100-month car loan requires is not worth the trade-off.
“I don’t think it’s necessary to sugar-coat it,” Kroc said. Independent“An eight-year-and-four-month loan on something that’s likely to lose 20% of its value before you get your second oil change is just crazy,”
A car’s depreciation – the rate at which its value decreases over time – is one of the many reasons why it may not make sense to get a 100-month auto loan. new car,
interest costs are high
In general, long-term loans come with a covenant. The longer the repayment term, the lower your monthly payments will be, but the more you will pay in interest over the life of the loan.
Additionally, lenders charge higher interest rates for longer loans because longer repayment periods make the lender more likely to assume that you may default on your payments.
A 100-month auto loan outweighs the benefits and costs, especially when you compare it to shorter repayment terms of four, five, and six years. The interest rate, monthly payment, and total interest paid for a $50,000 loan would be as follows (around the average cost of a new car, according to) kelly blue book)For borrowers with good credit:
|
repayment period |
interest rate* |
monthly payment |
interest paid |
total cost |
|
48 months |
5.89% |
$1,171.73 |
$6,243.11 |
$56,243.11 |
|
60 months |
6.29% |
$973.40 |
$8,403.80 |
$58,403.80 |
|
72 months |
6.59% |
$842.64 |
$10,670.13 |
$60,670.13 |
|
84 months |
8.49% |
$791.57 |
$16,492.12 |
$66,492.12 |
|
100 months |
9.39% |
$722.74 |
$22,273.85 |
$72,273.85 |
,Based on lowest available Navy Federal Credit Union Auto loan rates per repayment period for borrowers with excellent creditPlus an additional two percentage points to a borrower’s account with good credit instead of excellent credit.
In the example above, the monthly payment on a 100-month loan would be about $450 less than a 48-month loan, but you would pay about $16,000 more in interest over the life of the loan. From a financial perspective, California-based auto law firm CEO Michael A. Klitzke said Independent Was told by email that the 100-month loan makes no sense.
“Although lower monthly payments may seem attractive, [what] “Consumers often forget the substantial increase in the total cost of purchase,” Klitzke said. “Over 100 months, the total cost is likely to be more than double the price of the vehicle…the consumer ends up paying a lot more money to purchase the same vehicle.” The longer the loan, the more you’ll pay in interest.”
More likely to be ‘under water’
A 100-month loan on a $50,000 new car would yield $22,273.85 in interest if you made no additional payments. Such a high loan amount makes it more likely that you’ll be what’s known as “underwater”: owing more on your car loan than your car is actually worth.
So, if you get into an accident and your car is totaled, having a loan balance that is more than your car’s value means you have to continue making payments until your loan is paid off. This is not a good financial situation, said David Johnson, CEO of lending company Vervent.
“Lower monthly payments come at the expense of paying interest for years, and you’re typically ‘underwater’ (owing more than the car is worth) for a meaningful portion of the loan,” Johnson said in an email. Independent“The risk increases if life happens – job loss, accident, major repair, or need to sell/trade before debt grows,”
100-Month Loan Options
If the lower monthly payment on a $100 loan fits your budget better than an auto loan with a shorter repayment period, you’re not left with many options, said Ashley Morgan, attorney and owner of Virginia-based Ashley F. Morgan Law.
“Unfortunately, when someone [thinks] A 100-month loan is their only option, usually you either need a higher income or need to buy a cheaper car,” she said.
If buyers intend to purchase a certain car, they may find themselves financially cornered.
“If you’re trying to buy a specific car or trying to buy a vehicle at a certain price point, you’re bound to fit that amount into your budget,” Morgan said.
However, if you can find an affordable car that works for you and make a down payment, you can get a shorter loan – say 60 months instead of $100 – with monthly payments that fit your budget.
“Consider the shorter-term path: A modest car with a 48-72 month loan today may be a bridge to a better purchase later rather than being stuck in a decade of payments,” Johnson said.