While 96-month loans still seem a little far fetched, the trend is for longer terms overall. The U.S. Consumer Bankers Association stated that 5.8 percent of new vehicle loans and 3.1 percent of pre-owned vehicle loans were financed at 72 month or longer terms in 2002. Such figures compare with 4 percent and 2 percent respectively the previous year.
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| With a $30,000 loan balance at 8 percent over 96 months, you're paying $424.10 per month, and the end of term interest would add up to a staggering $10,713.60. (Photo: General Motors) |
Although the trend is concerning there does seem to be a few more fiscally responsible financiers left eschewing the long term loans. As reported in Automotive News, Jayne Schraw, finance manager for Phil Smart Mercedes-Benz in Seattle commented, "We don't offer 96-month loans. We don't encourage loans more than 60 months." Schraw added, "We don't believe it is in the customer's best interest."
Right you are Miss Schraw. Just look at the numbers. Automotive News reported that if a customer, with a $30,000 loan balance at 8 percent over 96 months, were paying $424.10 per month, the end of term interest would add up to a staggering $10,713.60. That's more than 30 percent interest overall. At the same rate of interest with a 60 month duration, the total interest paid drops significantly to $6,497.41. Of course, the monthly payment climbs to $608.29 - no pain, no gain
In the end, going long on a vehicle loan doesn't play out the best in the grand scheme of things - that is if you have any inclination toward getting ahead in life. It seems, the longer I live the more a favorite old adage rings true. "Interest; those that understand it make it, those that don't pay it."
So when the opportunity to stretch out that loan term and reduce the monthly payment, think long and hard about how rich you want to make your banker and how poor you're making yourself. Correct principles never change. As always, the best way to reduce your car payment is to reduce the initial cost of your car.