7 Signs That Your Auto Loan is Too Long

The average length of an auto loan is about 67 months. Far longer car loans are available, what effectively tie consumers down with payments for many years.

The majority of auto loans are at least 60 months long with quite a few underwritten for 72 months, even longer. Indeed, we’ve been tracking 84-month auto loans for several years and certain financial institutions, including credit unions, are now issuing 96-month auto loans. Imagine that: making payments on your new car for eight years!

There have been dire reports issued about longer term loans, although there are those in the industry who have attempted to minimize the impact of extended loans. With this in mind, Auto Trends has assembled a list of signs that your auto loan is simply too long for you.

auto loan1. You are sick of the car. Unless you have plans to keep your car for 10 or 15 years, you may be like the consumer who simply is tired of his vehicle. That is not much of a dilemma if your loan is about to expire, but if you are in year four of ownership with four years remaining, you may be stuck with a car you no longer want for another three or four years.

2. Your needs have changed, but you are stuck. That hot coupe you bought when you were single was a fantastic purchase decision. That is, you thought so at the time. Soon after you bought your car you met the girl of your dreams, married and have started a family. The salacious coupe no longer serves your needs and with the baby’s seat now in the mix, you dread moving it from car to car while worrying whether it is securely in place. In fact, you would prefer to rid yourself of the coupe, but you simply cannot afford to.

3. The car has outlasted the warranty. Almost all new cars come with a three-year, 36,000-mile bumper to bumper warranty. Further, the powertrain warranty may have you covered for five years and corrosion for six or more years. Chances are your eight-year loan will run out of warranty coverage well before the final payment has been recorded. Certainly, an extended warranty can help, but that’s another expenditure that only keeps you trapped in a car you may no longer want.

(See AlsoHow to Resolve a Private Seller Lien)

auto loans4. Your loan is upside down. The longer your auto loan term, the more likely you will be “upside down” for years to come. That financial appellation means you owe more money on the car than what it is worth — if you try to sell it, you will lose money. Yet, if you are struggling to cover payments and can manage without the car, sell it. However, you will be required to make up the deficiency between what the car is worth and your loan balance before the lender will release the title to the new owner.

5. The insurance coverage is more than you want. As long as your car has a lien on it, your lender will require certain types of insurance coverage. These days, people are more likely to retain collision coverage as vehicle values remain high. Even so, your insurer may stipulate other coverage and levels of coverage, especially if you have a specialty vehicle or lack certain kinds of safety equipment such as adaptive cruise control.

6. You have other expenses looming. Buy a car and finance it and you may be in an optimal position to swing your monthly payments and cover other expenses that come with owning a new car. What you may not have foreseen are certain expenses on the horizon that will soon squeeze your budget. For instance, braces for your teenager. A new roof for your home. In short, any expense that occurs with the passage of time.

auto loan7. Refinancing is no longer an option. One of the best ways to terminate a long-term auto loan is to refinance your car. That possibility fades the longer you have the car. Certainly, there are lenders specializing in auto loan refinancing, but the rate may not be as low as the deal you procured earlier. Furthermore, you may not be able to afford the higher monthly rates required to condense your term. And if your credit is not particularly strong, loan approval at a competitive rate may not be possible.

Auto Loan Considerations

So, what type of auto loan should you pursue? The one you can afford as well as the one that will not fetter you. One important reason why people opt for longer loans is to slip behind the wheel of a car that is above their pay grade or status. Therefore, if you have a Chevrolet Malibu budget, but are lusting after a Cadillac CTS, go with the Chevy and those niggling financial regrets are much less likely to supervene.

Author: Matthew Keegan
Matt Keegan has maintained his love for cars ever since his father taught him kicking tires can be one way to uncover a problem with a vehicle’s suspension system. He since moved on to learn a few things about coefficient of drag, G-forces, toe-heel shifting, and how to work the crazy infotainment system in some random weekly driver. Matt is a member of the Washington Automotive Press Association and is a contributor to various print and online media sources.

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