Fourtitude.com - Pros and Cons of longer (>48 months) loan terms?
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    1. 10-20-2016 10:45 PM #1
      what are some of the pros and cons, from a financial perspective

      ASSUMING you could afford to pay it off in 48 or less, but stretching to 60+ to lower the monthly payment

      also ASSUMING that you plan on keeping the vehicle for at least the length of the loan

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    3. Banned ChillOutPossum's Avatar
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      10-20-2016 10:48 PM #2
      What interest rate range

    4. 10-20-2016 10:49 PM #3
      Cons: You're increasing the amount of interest you're paying by prolonging the loan period.

      Pros: You're helping to increase your credit, if you make every payment on time (slightly subjective)

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      10-20-2016 10:50 PM #4
      The lower the rate, the less important it is to pay off early. So at 0%, go ahead and do a 20 year loan. At high rates (lets arbitrarily say 10% or above), you're prob better off with a shorter term. In between those, it all depends on your individual circumstances.

    6. 10-20-2016 10:55 PM #5
      Quote Originally Posted by GoHomePossum View Post
      What interest rate range
      say...0%/48mo. vs. .9-1.2%/60mo.

    7. 10-20-2016 10:56 PM #6
      Quote Originally Posted by fleeArmani View Post
      Cons: You're increasing the amount of interest you're paying by prolonging the loan period.

      Pros: You're helping to increase your credit, if you make every payment on time (slightly subjective)

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      i'd argue that the pro is that it helps lower the monthly payment which becomes important, esp. if you expect to be in a better financial situation in the future than you are in the present. however dangerous that assumption might be.

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      10-20-2016 10:57 PM #7
      Quote Originally Posted by vroom_vroom24 View Post
      say...0%/48mo. vs. .9-1.2%/60mo.
      With rates that comically low, just make the payment as low as possible! Go 72+ months.

    9. 10-20-2016 11:17 PM #8
      Quote Originally Posted by GoHomePossum View Post
      With rates that comically low, just make the payment as low as possible! Go 72+ months.
      not sure if serious...

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      10-20-2016 11:27 PM #9
      Quote Originally Posted by vroom_vroom24 View Post
      not sure if serious...
      Um. Yes. He is. Are you seriously still asking the question? With rates under 1%, there is no worry about extending the term. For two extra years, a loan balance of $30,000 only costs another $25 per month. The cost difference is negligible, so you might as well stretch it out and make life more comfortable with lower monthly payments.

      There is no question. At those rates, take the longer term. You can always pay it off early if you care to.

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      10-20-2016 11:28 PM #10
      Quote Originally Posted by Dave_Car_Guy View Post
      Um. Yes. He is. Are you seriously still asking the question? With rates under 1%, there is no worry about extending the term. For two extra years, a loan balance of $30,000 only costs another $25 per month. The cost difference is negligible, so you might as well stretch it out and make life more comfortable with lower monthly payments.

      There is no question. At those rates, take the longer term. You can always pay it off early if you care to.
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      It varies.
      10-20-2016 11:31 PM #11
      -You'll pay more in total interest.
      -You're more likely to be upside down in the loan at any given time.
      -You're more likely to still owe money on a car that's out of warranty (which may or may not be a real concern).
      -Making more monthly payments on time may have a greater benefit to your credit score, depending on your history.
      -You may or may not be able to realize a rate of return in excess of the incremental increase in interest expense attributable to the longer term, depending on risk tolerance, financial sophistication and amount invested.

      That's about it. Contrary to TFL wisdom, it's not always a bad thing to carry debt balances.
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      10-20-2016 11:34 PM #12
      Quote Originally Posted by Dave_Car_Guy View Post
      Um. Yes. He is. Are you seriously still asking the question? With rates under 1%, there is no worry about extending the term. For two extra years, a loan balance of $30,000 only costs another $25 per month. The cost difference is negligible, so you might as well stretch it out and make life more comfortable with lower monthly payments.

      There is no question. At those rates, take the longer term. You can always pay it off early if you care to.
      Yup. If there isn't a big penalty in rate, take a longer term. You can always pay more than you're obligated, but you can't pay less. Take out a 72 month loan, pay it off in 48, but make just a minimum payment during Christmas time.
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      10-20-2016 11:38 PM #13
      Quote Originally Posted by GoHomePossum View Post
      With rates that comically low, just make the payment as low as possible! Go 72+ months.
      Financially speaking, this is the correct answer. (Stretch out a zero percent loan as long as you can).

      However, I would never want to finance a car for longer than I intended to own it. So, if you think you might want to trade it off after five years, personally, I would not go longer than 60 months, just so that I didn't have to roll over the remainder into a new loan. Now, as long as rates STAY at zero percent, there would be very little harm in rolling over the loan into a new one, but the two problems with that are (1) there is no guarantee you'll be able to finance at zero percent (or below 4%) in five years and (2) your payment on the new loan with the rolled over amount included will be higher.

      The other issue you want to be careful of is borrowing money you really can't afford just because the interest rates are low. So, for example, if you have $40,000 cash in the bank and you want to buy a new car that cost $40,000 (or even $50k or $60k) and you have a good income and a solid job, then it makes more sense to leave that money where it's earning interest and borrow money at zero percent. (Or if you have it in stocks/mutual funds earning better than 5%, go ahead and borrow the money even if the interest rate is 2% or 3%). On the other hand, if you have no savings and you live paycheck to paycheck, be very cautious about adding a monthly payment you don't need, even if the interest rate is low. Buying a car you can't afford will still cost a lot of money because of the cost of depreciation.

      (Sorry, for getting a little off topic)

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      10-20-2016 11:43 PM #14
      My last four cars that I bought new I have done 60 month. I have a very high credit score so I'm usually not paying more than 1-2%. Having major problems within the first 5 years of ownership is unlikely.

      You can always pay it off sooner if you like, I've done that too...
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      10-20-2016 11:49 PM #15
      0% for 72 months... added the 6 year/100k mile warranty because why the hell not? Actually, asked VW Credit if I could finance some extra cash if they just throw it in the trunk.

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      10-20-2016 11:50 PM #16
      On the Accord I had, my choices were 0.9% at 36 months and 1.9% at 60 months. The increased interest did not outweigh the benefit of smoothing income, went with the 60 month term.

    18. 10-20-2016 11:57 PM #17
      Quote Originally Posted by SoCalDubber View Post
      0% for 72 months... added the 6 year/100k mile warranty because why the hell not? Actually, asked VW Credit if I could finance some extra cash if they just throw it in the trunk.

      dam

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      10-21-2016 02:43 AM #18
      Quote Originally Posted by Dave_Car_Guy View Post
      The lower the rate, the less important it is to pay off early. So at 0%, go ahead and do a 20 year loan.
      Pretty much what I came to say. As long as you have money in reserve so that you can afford to alter course in the event of a job loss, there's no reason not to take a long loan at 2-3%. I'd say anything above 3% though you're definitely above the rate of inflation and beyond the point where I'd consider the loan to have close to no effective disadvantage versus putting money towards investments instead, especially if you're trying to choose between upping your 401k contribution or paying off your car early. That 401k contribution may be worth 15-25% or more between federal and state tax benefit plus investment return, versus a 3% interest rate on the loan.

    20. 10-21-2016 07:56 AM #19
      The low loan rates or zero interest rates are often promotional or gimmicks. Your likely paying a higher sales prices to get that rate. Your paying upfront to the same company your buying from.

    21. 10-21-2016 08:33 AM #20
      Quote Originally Posted by Tdi13golf View Post
      The low loan rates or zero interest rates are often promotional or gimmicks. Your likely paying a higher sales prices to get that rate. Your paying upfront to the same company your buying from.
      i've heard this before but if you negotiate a price before stating how you intend to pay - how so?

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      10-21-2016 08:42 AM #21
      Quote Originally Posted by Tdi13golf View Post
      The low loan rates or zero interest rates are often promotional or gimmicks. Your likely paying a higher sales prices to get that rate. Your paying upfront to the same company your buying from.
      The pendulum also swings the other way - they will drop the sales price to get you to buy because they know they will make it back in the end due to kickbacks from the lending institution.

      Similar to trade-ins, dropping the bomb at the end of negotiations that you have a trade does not necessarily help you.

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      10-21-2016 09:04 AM #22
      Depends mostly on how long you anticipate keeping the car. If you have a loan longer than 48 months. you'll be upside down on most vehicles that aren't a Toyota or Honda on it unless you put a substantial amount towards the purchase price. If you think you might trade or sell a vehicle within the term of the loan, either put 20% down or keep the term short.

    24. 10-21-2016 10:33 AM #23
      Quote Originally Posted by vroom_vroom24 View Post
      i've heard this before but if you negotiate a price before stating how you intend to pay - how so?
      If you'll notice to the marketing periods, the periods before or after the special loan rate period offer will have rebates. Example GM might offer 20% off msrp for this month at regular loan rates. Then next month the price goes back up but the promotional offer is now zero percent loan. Either way GM is getting theirs.

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      10-21-2016 11:00 AM #24
      Quote Originally Posted by Tdi13golf View Post
      The low loan rates or zero interest rates are often promotional or gimmicks. Your likely paying a higher sales prices to get that rate. Your paying upfront to the same company your buying from.
      Not always the case. What you're referring to is that the captive financing company is offering EITHER cash incentive OR a subvented rate. In my case, for example, there was zero "trunk money" (which is cash that can be taken in-lieu of the special rate) on the car because it was a Golf R and they were offering the 0% for 72 months on the entire lineup (other than TDI, if I remember correctly).

      Keep in mind, though, that typically if you're being offered 1.9% for 60 months for example OR $1,500 cash that you can certainly take the cash AND find yourself a great rate from an outside bank. So you can take $1,500 and get maybe a 1.9% or 2.5%.
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      10-21-2016 11:56 AM #25
      Quote Originally Posted by SoCalDubber View Post
      Not always the case. What you're referring to is that the captive financing company is offering EITHER cash incentive OR a subvented rate. In my case, for example, there was zero "trunk money" (which is cash that can be taken in-lieu of the special rate) on the car because it was a Golf R and they were offering the 0% for 72 months on the entire lineup (other than TDI, if I remember correctly).

      Keep in mind, though, that typically if you're being offered 1.9% for 60 months for example OR $1,500 cash that you can certainly take the cash AND find yourself a great rate from an outside bank. So you can take $1,500 and get maybe a 1.9% or 2.5%.
      In addition, they might have unadvertised deals - 3 years ago, Mazda was advertising $X cash back or 0% for 72 months on MY2013 Mazda3's to make way for the 2014's. We worked with our dealer to locate a car we wanted (a '13 Mazda3 hatch) and we wanted to finance at 0%, so they quoted us at 72 months. We didn't want a 72-month note so we asked if they'd offer the 0% deal for 60 months. Turns out, as part of that same promo deal, Mazda NA would give us $500 cash back if we did 0% at 60 months. So that's what we went with.

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