Tuesday, April 15, 2008

86 The 84-Month Car Loan

When I graduated from college and realized that I knew next to nothing about how to take care of my finances, I went and read several books on the subject. One of the pieces of advice that always stuck with me was that the five-year car loan was one of the worst "investments" you can make. Cars depreciate too quickly to justify paying for one for so long. It is always more sensible to go with a four- or three-year loan if you can swing it. And if you can't swing it, you probably can't afford that car.

Well, time marches on (sadly for me, it's marched a lot since I graduated) and the American populace has many more loan options, including the unbelievably bad seven-year auto loan. This is sort of the car version of the sub-prime mortgage. As the guys at The Car Connection point out, if you have to take a seven-year loan to buy that new jalopy, you can't afford that car. Odds are, you're going to be trading that car in for a new one in 3-4 years and with an 84-month loan, you'll probably still owe more than the vehicle is worth. Bad idea.

On the bright side, with the car market so soft these days, you should be able to find some legitimate good deals, like Chrysler's 0% financing.


Todd said...

How about a 0% 84-month loan? That would seem like a pretty good deal to me. I guess it all depends on the rate, especially if you can see yourself keeping the car for 7 years.

Dave said...

Good point. At 0%, seven years sounds pretty nice!

Otherwise, no matter your rate, you're paying it over a significantly longer period and therefor paying a whole lot more for your car over its life.

Todd said...

The good news for car buyers is that more and more 0% financing offers are popping up now. With the economy slowing, and the Fed lowering interest rates, this trend will probably continue.

Unknown said...

I recently came across your post and have been reading along. I thought I would leave my first comment. I don't know what to say except that it caught my interest and you've provided informative points. I will visit this blog often.

Thank you,


Small Business Loans

Rachel said...

I'm surprised 84 month car loans are even legal. They seem pretty predatory to me, but so do payday loans and those are perfectly legal too, so apparently anything is fair game these days.

Rachel @ Personal Trade lines