Temptation is a seductress we all must face in our lives.
Rarely is she more powerful than the moment we step foot in a car dealership. When surrounded by shiny sheet metal and the smell of new interiors, the part of our brains responsible for good financial judgment suddenly decides to go party in the Bahamas rather than provide us with good sense in the face of temptation.
That’s why, when you step foot into a Toyota dealership to look at a base Corolla, you spot the Lexus sign across the street and wonder, “What if? How bad could the monthly payment be?”
These days, car payments are getting easier to handle because of longer loan terms. But is falling into temptation’s grip a bad thing?
Sound financial planners (and popes, apparently), will tell you to buy the least expensive car that fits your needs and pay it off as quickly as possible.
The thing is, planners and pontiffs are not car buffs. Why should someone settle for a base model Subaru Legacy when she could step up to a decked-out top-level trim and get all the goodies for just a few more dollars per month? Thanks to longer-term loans than ever before, that’s exactly what’s happening.
A story at The Detroit News says,
Loans of six years or longer account for 30 percent of all financing deals so far this year, including leases, according to research firm J.D. Power and Associates.
Here’s the thing, though: Terms might be longer, but finance rates are relatively low. Extending a term to 6 years or more isn’t that big a deal if the rate is less than 3 percent. If it costs only a couple hundred bucks over the long term to keep the payment low, what’s the harm in upgrading to a more expensive car?
That’s a rhetorical question, because there is no harm, assuming you keep the car for the length of the loan. The dark side of temptation rears its ugly head, though, if you want to sell early into your ownership. That’s when you’ll discover that you probably owe much more than the car is worth.
Which would you prefer, a cheaper car or a longer car loan?