ATLANTA - It would be ideal if we could pay for our cars in cash, but that's not usually the case. So, a car loan is normal. But not all loans are a good idea.
As a rule, you want to pay off car loans as quickly as possible because the longer the length of the loan the more you're paying for that car.
According to the Consumer Financial Protection Bureau, last year 42 percent of auto loans were for six years or more. In loan terms that 72 months. And that's not good. And what's worse, we're now seeing 96-month loans.
It sounds even worse when you are reminded that this means eight years. Eight. That's bananas. There are often 'pros' and 'cons' to many decisions, but not really here. People do it so that they can afford a nicer, more expensive car. That's about it.
But the list of reasons a lengthy auto loan is a bad idea is long. One reason I've already touched on is the obvious one: You'll pay interest longer and more of it raising the cost of the automobile.
Here are three reasons you might not have considered.
ONE, again, it's an eight-year loan. You may in all likelihood want another car in that time. But, here's the rub, you'll have to pay it off before selling it and it's not likely going to be worth what you still owe.
TWO, that goes for lost trade-in value, too. A dealer is going to pay you to want it's worth not what you owe.
THREE, let's say you do keep it. Big ticket repairs come in at about 80,000 miles. The warranty is long gone. And you still have about a year and a half left on that loan that you're still paying on. Ouch.
Still not convinced? The Consumer Financial Protection Bureau says longer loans have higher default rates, too, because you're really getting more car than you can afford.