New Car Financing Strategies

Reader question:

If I’m buying a new car, how long should the I finance the loan for?


Great question.

Sometimes drivers try to avoid big down payments, when that can be one of the worst thing to do. It’s also why people will go against the good of their finances and stretch out a loan to seventy-two months. It’s true that sometimes, if you have bad credit and aren’t able to get a good deal on buying a new car, or if you simply don’t make a lot of money, the only way to get that new car at the price it’s offered is to stretch out the loan terms. However, that just costs you more money in the long run and devalues your purchase.

How does it devalue your purchase? Consider the fact that the second you drive off the lot, the value of your car depreciates about forty percent. So that expensive car you just bought is now worth a lot less. Then, you have a seventy two month loan on it. That’s six years. It may mean that your monthly payments will be small, but by the time those six years are over and you’re ready to trade it in for a new car, imagine how much it will have depreciated. Having a long loan term on a new car often turns the value of the car “upside down”. That means that, near the end of the pay off, you owe more on your car than it is actually worth.

The best advice then, is to either fit your loan into forty eight months or get a cheaper car. If you can’t fit it into that amount of time, then it isn’t worth it. It isn’t good news when you’re in the position that you can’t afford such a short loan period, but if you can’t, you should look into getting a used car or brush up on your negotiating skills to fit it in there, because if you don’t, you’re only hurting yourself.


Fashun Guadarrama.

About the Author:

Austin Davis, consumer car repair advocate. "Hi there! I love to help people solve their car repair problems and I hope my site was helpful to you today. Thank you for stopping by."