Is a Longer Car Loan Really More Expensive?
NEW YORK ( TheStreet) -- In the old days, you haggled a price for a car, handed over your down payment and took out a loan for the rest -- usually for somewhere between 24 and 48 months. But now the average loan term exceeds five years -- 64 months, according to Experian, the credit-rating company.
It's the longest average since 2008, and it means many borrowers are paying more for their cars than they have to, in the form of extra interest costs. Some borrowers borrow for six years, even seven.
On the other hand, interest rates are so low that the extra cost isn't all that bad, making the long-term loan a reasonable option for those who want to keep as much ready cash as they can.
Why the affection for long-term loans? Simple: the monthly payments are lower because the principal portion of the payment is spread out further. The economic problems and job worries of the past few years have made borrowers reluctant to take on big payments, even if that saves money in the long run.Big payments for purchases are especially unappealing compared to the much lower payments on leases. And, of course, lenders are happy to push long-term loans because interest rates are higher and the payments just keep coming, and coming and coming. The
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