Common Mistakes When Financing A Car

01 Jul Common Mistakes When Financing A Car

Time to replace that gas guzzler. With fuel prices at all time highs and predictions that they will go higher, many are thinking about buying a newer, more fuel efficient car. Car sales are down, so this must be a good time to buy a new car, right? Wrong.

Here are the common mistakes many make when looking to buy a new car.

Demand. If you are looking for a new fuel-efficient car, so is everyone else. That places a premium on the demand for vehicles like hybrids and other small cars. The law of supply and demand dictates that you will pay more for that vehicle now than any other time. Think; “Will I really save that much money on gas purchases that makes this purchase feasible?”

Time. The ads scream. “Low Monthly Payments!”, “No Money Down!”, or “2.9% Financing!”. But the trick is time. With a longer car loan and a low rate, surely you will pay less every month on your payments. But how long is long? Just a generation ago, three years was the maximum time for a car loan. Now, it is not uncommon to find loans with durations of up to six years and in some cases, longer. Sure, even with a sizeable down payment, the purchase of a currently priced car could cost you $600 a month on a three year car loan. But would you be saving anything if that same car loan cost you $350 a month for six years? (Do the math; 36 months x $600 = ??? versus 72 months x $350 = ???) That car loan is $3,600 more expensive. You are better to buy a car truly within your means.

Value. With very few rare exceptions, cars go down in value over time, not up. A three year old car is worth much more than a six year old car. Since the average lifespan of a car is about 8 years at 150,000 miles, how much will your car be worth when it is paid off? Will an expensiive car loan guarantee that you become a slave to your debt?

“ConnecticutGene Melchionne is a bankruptcy lawyer covering the entire State of Connecticut. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.

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