Financing a depreciating asset is rarely a good idea. How does it make sense to purchase a $40,000 vehicle, finance it over many years, and then end up with a money pit that costs more to keep maintained than it’s worth? On top of that, not only do you have a car worth a fraction of what you paid, you’ve handed a bank many thousands of dollars for the privilege.
Very few people can afford to pay cash for a car, so financing for a few years makes sense logically, if not financially. There’s not a financial advisor on the planet who will say financing a car over 60 months is a good idea.
Unless, of course, you’re the bank or a very specific kind of buyer.
There was a time when financing a car over 36 to 48 months was standard. As we all know, car prices have increased over the years, and the length of financing arrangements has kept pace. First came 60-month financing, followed by 72 months and then 84.
Think about how long 84 months is. That’s seven years. That’s buying a car now and not paying it off until 2021. Yes, the monthly payments on an 84-month loan are more affordable than those for a 48-month loan, but you end up paying a lot more in interest to the bank. Great for the bank, bad for the buyer.
Some loans are even exceeding 84 months and going 97 or, gasp, 144. Could a 12-year car loan possibly make sense? Absolutely! When you’re buying a supercar, that is.
Automotive News reported on a gentleman who financed a $300,000 Aston Martin with a 12-year loan:
“…the Aston Martin buyer is a successful businessperson who made a hefty down payment, says a staffer at the Aston Martin dealership, who wished to remain anonymous. But stretching the amount financed over 144 months offered additional flexibility that the customer appreciated. And the buyer plans to pay the 12-year loan off early.”
That’s something I could see myself doing. An Aston Martin is a car you buy for life, but if the 144-month trend trickles down to $30,000 Hondas, car buyers will get themselves into trouble.
Would you consider a 12-year car loan?