Long-term Auto Loans: A Ticking Time Bomb
A car is a great machine, being able to transport you from Point A to Point B and then onto Point C. Many of us take for granted our cars, paying for them either straight up or financing them. Loans are also a great thing; they help us get through difficult times. Put them together and what do you have? A ticking time bomb!
There’s a lot of difference in paying for a monthly car amortization with lower interest than with higher interest of loans. However, the span of time you need to repay it is another story. Most of the time the ones applying for long-term auto loans are part-time working college students or those who want to keep any model of car for a long time. Here are some reasons why long-term auto loans become a ticking time bomb.
A long-term loan usually has a higher rate of interest. And since you are paying it for a longer period you are subject to paying more interests than short-term auto loans. In fact, at the end period of the loan, sometimes, the accumulated interest is doubled with the principal loaned.
An auto loan payable for 72 months takes exactly 6 years to finish. What if you tire out of your car before you get to pay it? This is the usual problem since auto attractions can change from time to time. Unless you want to keep the car that long then this idea is really impractical to pursue. The worst thing is most lenders don’t accept full payment along the payment period. So, you are imprisoned to pay it in monthly basis until 6 years.
After paying continuously for 2 years you get to reduce your debt and that’s good news! However, as your debt cuts down so as the value of your car since cars diminish their value after a few years where new models are coming out. After how many years of using your car some parts of it may not function like they used to when your car is still new. Having your car overhauled or checked all the time is an additional cost for you too.
A long-term auto loan can change the way you live negatively for it entails debt problems in the long run. It may sound a good choice but in the end you are bound to its hassles as it affects your whole budget and worst it takes time for you to fully recover.