Cars and car loans have become equivalent. If you want to buy a new car, a car loan has become an absolute necessity. With the growing demand for auto finance and increasing competition in the car loan market, lenders are constantly trying to innovate. In recent years, there have been pioneering ideas like no car loans and no car loans. This year has not changed in terms of innovation as lenders have introduced very unconventional “8-year loan terms”.
Car loaners are increasingly thrilled to offer auto loans with unexpectedly longer terms. Experian Automotive March 2013 reported the average repayment terms. Average maturities have risen to an all-time high of 65 months. And now the experts predict that the repayment term of 96 months will become popular.
Why are the loan terms getting longer?
The report also revealed the increase in new car loan amount. The average new loan amount for the fourth quarter of 2012 has increased by $ 272. This shows that car prices are rising steadily, making it difficult to buy a new car. If new car sales drop, this would affect the automotive industry. As a result, lenders have begun to offer longer terms to help Americans meet their new car dream.
Also, the appetite of consumers for car loans is growing. The current economic period is better than in the recession years. Borrowers have performed exceptionally well on regular payments. This allows lenders to trust car buyers.
Benefits of longer car loan terms
- Buy your dream car
Due to the high monthly payments, it is not possible for everyone to buy a new car. Longer durations, however, ensure affordability. This gives you the opportunity to buy any desired car.
- Lower payments
If you opt for a shorter term, you have to deal with high payments. However, longer loan terms can lower your monthly payments. This means that you will experience considerable relief when making your payment. An example will make things clearer. If you buy a car for 4 years for $ 35,000 at 4%, the monthly payments are $ 790.27. If you extend the term to 8 years, the payments amount to approximately 426.62 USD.
- Regular payments can improve your credit score
A term of 7-8 years is a big responsibility. If you are able to make regular payments, your credit rating will definitely increase. It also shows other lenders of your commitment and your financial standing.
Problems with extended loan terms
Longer loan terms give you flexibility by offering affordable payments. But for that you have to pay a price. Throughout the term, your total interest will be on the higher side. Use the same example for a $ 35,000 (4%) car for 4 years and calculate your total interest payment. It will be $ 2,932.81. If you choose to run for 8 years, it will be $ 5,955.97. This means you have to pay $ 3023.16 more.