How to Avoid Overpaying For Your Next Car-Avoid a 72 Month or Longer Term Loan
When I was growing up my father told me to never get a car loan longer than 36 months.
My first car was 1 year old, it cost $10,000 and my payment was $320 a month. The next car I got was $18,000. I had to finance it over 60 months to keep my payment at $365. I ended up paying almost $22,000 back over the life of the loan. If I would have financed it over 36 months my payment would have been $561 but I would have paid back only $20,200 over the life of the loan. That’s a savings of $1,800. To make matters worse, my $18,000 car was only worth $7,200.
If I had gotten the 36 month loan I would have been done paying on the loan in 3 years and I could have taken that extra $365 and put it into savings for 2 years. That $561 over 2 years would have added up to $13,464. So at the end of 5 years I would have paid off the car, saved $13,464 and have a car that was worth $7,200. That’s almost $21,000 I would have to go towards my next car.
Read more about which loan term is right for you here.