It is easy to get caught up in the phenomenon of the new car smell. You saw a car that looked great to you, your old car is tired and you are tired of it. You go to a dealership, take that test drive, and the love affair begins. You are blinded by your favorite color, the great stereo, all the safety features, and the fuel economy. You'll do whatever it takes to drive home in your dream car. Does that mean you'll sign a 7-year legal, binding contract so you can afford the payments? If so, you are not alone-but remember that misery loves company.
72-Month Loan Cutoff
Going more than 72 months should be approached with extreme caution. Based on your annual mileage, will the car even last 6 years? Are you willing to drive this car for at least 60 months before trading it, because odds are, you'll have to? Did you take the time to calculate how much extra interest you'll pay? You can bet that the longer the loan, the higher the interest rate. What if something catastrophic happens, like loss of job, or health issues and you need to get out of the loan? It is very difficult to get out of a long-term loan unless you had a hefty down payment at the time you purchased.
This is where restraint comes in. If you can't get the car you want in 72 months or fewer, you should consider not buying the car. I understand that at the point you find out you can't afford it, you are already in love with it, so planning in advance is critical. There are a ton of car payment calculators online, so figure your budget and find out how much money you can finance on 60 months to get to the payment you can afford, and stick to it, especially with interest rates being so high.
If you just have to have the car you love, and you don't drive over 15,000 miles a year, look at a 36- or 39-month lease, they are much easier to get out of if you have to. According to Experian's State of the Automotive Finance Market Q2 2023 report, the average leasing payment in the second quarter of 2023 was $586 a month. Compare that to an average $729 monthly car loan payment.
Your Down Payment
Also, if possible, postpone the decision until you can save enough down payment to afford the car on no more than a 6-year contract. Perhaps you can do without some of the options on the car you like, and lastly, maybe there is a two-year-old, low mileage pre-owned car out there that you would be happy with.
If you buy a car today on an 84-month term, it will be almost the year 2030 until you have it paid off. Does that really sound like a good idea? Make a smart car buying decision by using restraint and by using good common sense.