Have you ever taken out a car loan? I’ve done so once. It was years ago, and for a vehicle that I would be out of my ideal price range today.
This is because, as we get older, we are supposed to get wiser. Not everyone follows this pattern, and I know that I have my blind spots. But when it comes to taking on loans, I think I’ve progressed in my thinking. Unless I need to take on a loan, I would prefer not to. Paying cash for a car sounds ideal, and I say that knowing that the car I buy will be purchased more with needs in mind, instead of wants.
If you are going to take out a loan, I like the idea of trying to make it as short-term as possible. I took out a 3-year loan, and couldn’t wait to get it over with. 36 months of payments, tormenting my bank account 3 dozen times.
What about the notion of a longer-term loan than that? I’m not talking about 4 years, or even 5 years. I’m talking about 8 years! That’s right, there are 96-month car loans available!
Somebody please tell me why anybody needs to take out an 8-year car loan.
If a person really needs a car, why not get one for a modest price? One can get a car that gets the job done, going from Point A to Point B, for a few thousand dollars. Admittedly, I wouldn’t want to do that – but if one’s finances require this, then it can be done. If someone is really tight on cash, maybe it would require a loan to pay for such a car.
But not 8 years.
That’s the point – I can’t see how too many people have to take out loans of that duration. If that type of loan is required, then my guess is that car is too expensive, and you don’t need it. Simple as that.
There are plenty of things that could surprise people in life. Illness, job loss, or any number of things could surprise us and impact our finances. Why purposely put ourselves behind the proverbial 8-ball by taking out unnecessary debt obligations? While debt-free living might not be feasible for everyone, purposely making our lives debt-burdened is something I don’t get.
I wonder what goes through the mind of someone taking on an eight year loan. Probably things such as:
“Oh, I MUST have this car. It’s my DREAM car!”
Or, for the entitled person: “I’m not settling for some average car. I DESERVE a certain standard!”.
Or, for the Big Hat, No Cattle people: “I couldn’t imagine driving some used, no-name car. What would people think? I need to keep up my image”.
Really, at the end of the car loan, the thing will be 8 years old. Now, I’m a fan of embracing car longevity, and driving one a long time. My past experience going past 220,00 miles can attest to that! The only thing is, not all cars drive well for that long. A car 8 years old may not be all that useful at that point, and may not have much residual value.
Maybe there are people that need such a loan. I just can’t come up with a good reason why!
My Questions for You
Do you think the concept of the 96-month car loan is as silly as I think it is?
Have you ever taken on a car loan? If so, how long was the duration?
A term of 96 months is crazy! We have car loans, but mainly took them out because of the very low interest rates.
Michelle – 96 months is out there, I agree!
Rule of thumb: If the only way a payment for a car will fit into your budget is to stretch a loan over 8 years, you can’t afford the car, period. In fact, I’d say if the loan has to be longer than 3 years, you can’t afford the car.
Kurt – good wisdom, as usual. Beyond 3 years means a person is really stretching, but probably doesn’t realize it.
I know I personally would have only needed a 2-3 year loan to pay off my car, but the salesperson was like “but you could get a 5 year loan for the same interest rate!” I didn’t feel like arguing, so I said “fine, I’ll do the 5 year loan,” knowing full well that I was going to pay off the loan in 2-3 years.
I get that it’s a tactic to lower the monthly payments so they can get you into a more expensive car, but it also seems like they needlessly push longer term loans to people who don’t need or want them.
(And even knowing that my payment is going to be gone in under 3 years, I still wish I had gotten a car with cash. I just wasn’t comfortable buying a car on Craigslist, and the markup on used cars at dealerships is absolutely ridiculous, so I went with a new car instead, with the intention of driving it into the ground.)
Gen Y – those salespeople can be quite persistent, can’t they! Well, if you’re driving it into the ground, you won’t have to deal with one of those people for quite a while, so that’s good news 🙂
I wrote about this very topic a few weeks ago and think it’s absolutely crazy. Sure, that might allow you to “afford” the payment, but just think of the interest you’ll pay! We took a 4 year loan on our last car and put a healthy down payment down and paid it off in under 3 years.
John – I know what you mean, it’s crazy. I wonder what someone taking out such a loan is thinking, what the thought process is.
8 years! That’s ridiculous. I can see how a salesman might pitch it – maximum cash flow, ease of payments, blah blah blah. But I couldn’t imagine signing an 8 year loan for a car.
CF – I wonder how someone could actually pitch this, and wonder even more how someone could take on such a loan on purpose.
96 months is insane.
I have a loan. It was a 60 month loan at 1.9 percent so assuming I use the full term of the loan to pay it off it will have cost me about $800 to finance the purchase, I think everyone should know that number. Also I’ll admit my feelings about the brand and having owned many cars from that manufacturer swayed my decision. I bought a Toyota. I got through high school and college by buying old Toyotas and Hondas and driving them until they got too expensive to repair. I looked at two other cars that were a little less expensive but significantly smaller, I’m pretty confident that if I’d purchased either of those cars I’d have ‘upgraded’ by now and have a higher payment.
I bought my car new after Bambi gave up her will to live and jumped in front of my old ford ranger.
I chose to buy a new car because I had just moved from the city I’d lived in my entire life to a city 3 hours away and didn’t really know anyone. I know I could have bought a used car as well but having the full term of the warranty was also important me. It was a good decision for me at the time. Now, a couple times a year I think about trading in my car for something a little bigger but I just remind myself that my car is almost paid off and think about how much faster my Emergency Fund will grow once I’m done. I could be pay my car off faster but there is no motivation to, I’d rather put the money towards my student loans which have a higher interest rate.
Margot – thanks for stopping by! Too bad about Bambi’s bad decision, it cost both her and you apparently! Well, at least you’re making a good decision by holding off on trading in the car for something bigger, and focusing on eliminating student loan debt and also thinking of an emergency fund. Those things are more important than a bigger vehicle, by far. Great job…