Problems with Long Term Auto Loans

Long-term auto loans are a ridiculous way to lure unsuspecting rubes into doling out their hard-earned cash over a lengthy period of time. Car dealerships are notorious for extracting extra money out of the pockets of their so-called valued customers. The biggest scam of all is the zero percent financing hook that they use as a subterfuge to pull you in off of the street.

The ticking time bomb of the long-term auto loan is the depreciation value of a car. The moment that you drive a vehicle off of the car lot, the value has decreased by approximately 20% – 25%. Over the course of a long-term loan, you will wind up paying more money than the vehicle is worth, and once you have finally paid off this lengthy car loan, the vehicle will be worth next to nothing. In essence, you will be making monthly car payments that nearly exceed the value of the vehicle.

Many cars, or car owners for that matter, rarely keep a car for a long period of time. Long-term car loans are seen as being for 7 years, which will guarantee that the vehicle will be almost worthless by the time you finish paying for it in its entirety. The 7 year loan behooves the car dealership, but sucks the money out of your bank account without mercy.

Many car dealerships also offer cheap financing on the first several years of a loan, only to then bump up the interest payments on the back end. This gives the purchaser a false sense of security in that they will have small payments for now, and then down the road a few years they will be making more money at work (theoretically), and will be able to afford the extra payment.

Dealers also offer the incentive to pay the loan off quicker, but in actuality that rarely works. The only people that can afford to pay off a loan quicker typically do not need to take out a loan, let alone one for 7 years.

Cars are the worst investment possible. A long-term auto loan is a ticking time bomb because the whole experience eventually blows up in your face, which is why it so aptly named. Each year of your long-term auto loan sees more depreciation in your vehicle than money coming off of your loan (thanks to those seemingly low interest rates).

Within a few years, the value of the car will be much lower than what you still owe. Once you realize the predicament you are facing, it is too late, and trading in your vehicle will result in a huge financial loss. The shackles of debt are not easily removed, and people that get themselves tied up in a long-term auto loan end up in a state of financial disarray.

When you find yourself seeking a new automobile, you are best to avoid lengthy car loans. Buy the car that you can afford, and if you must take out a loan to finance the vehicle, amortize over the shortest possible period. This will at least give you some hope of a decent return on your investment once you need to sell or trade-in that vehicle.