Home > Auto Loans > 8 Years Auto Loans: Ready For The Long Term Loans?
8 Years Auto Loans: Ready For The Long Term Loans? |
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The latest trend in auto loans is moving towards a longer-term loan that brings down the monthly payments considerably so that all those who could not afford to buy the cars that they wanted to own can now fulfill their desires.
Long-term auto loans of up to 8 years are now taking the place of the earlier 3 to 4 year loan periods. This has helped the sagging new car sales market to pick up by bringing down the monthly payments to a large extent. The employment scenario in America has taken a downward slide with the result that more and more Americans who were in high-profile jobs are now forced to make do with lesser paying jobs. The auto dealers are targeting these auto loans consumers with such long term loans so that they can afford the lower monthly payments. Very often, however, the consumers prove to be upside down when they turn in their cars, say at the end of three years. Most of the big players in this field, like GE Capital, GMAC and FMC have lost millions and then they had to beat a hasty retreat from the leasing game as they could not sell the traded-in cars for the agreed upon residual values. There have been many cases where the consumer, after trading in the car before end of term or open end lease, had to merge the upside down difference in values into the financing of their new cars. This led to the spiraling of the monthly payments, whereby, for example, payments of $400 per month on a Nissan Sentra or Ford Fajita had to be made. The future of auto sales is obviously going to take a downturn with the introduction of 8-year auto loans as people will be stuck with their cars for eight years and they will not be able to change their cars as often as they used to do previously. On the other hand, the auto parts market will definitely do better in a few years time when the cars will need maintenance. However, the car washing industry will not be very buoyant after the initial 3-4 year period when most new car owners like to spend more money to keep their cars in a spick and span condition. Cars are the most prized possessions of most people, as they like to upgrade or personalize them with the latest gadgets. Americans simply love their cars and the state of their cars reflects their personality. Very often, events are organized that encourage large sector rotation or sub-sector changes. They act as catalysts for moving the markets. The resultant increase in auto parts sales and the decline in the car wash industry will still lead to a general expansion of activities as there will be more cars on the road. The market has experimented before with 8-year auto loans but certain difficulties were experienced for shorter-term profits. One of the main apprehensions that most potential purchasers are worried about is that such a long-term loan might easily last longer than the car itself. People do not like to fall in such an upside down position where the balance against their loan is more than the market value of the 8-year old car. However, you should remember that apart from selling cars, automakers are also in the finance business. It is important for consumers to go through the fine print very carefully before signing on dotted lines. If you wish to take a six- to eight-year auto loan, you should know that the average interest rate on a four-year note is about 3.5%, but on a 96-month deal it can approach 9%. The other major disadvantage of an 8-year auto loan is that the car becomes more of a liability by the time the loan is paid off fully. You might be glad that at the end of the loan, you would be rid of making the monthly payments, but the monthly maintenance costs will easily cost you much more than the original monthly loan payments that you were making earlier. |
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