Credit Score Only Fair? A 7-Year Loan Could Work for You

The new Volvo XC90

An interesting trend in automotive financing could affect your ability to buy a new car. To take advantage, you’re going to need fair (but not good) credit and be willing to stretch the duration of your loan up to 7 years.

As outlined in a recent Automotive News article, auto loans lasting 84 months or more are currently finding both advocates and opponents in the automotive-financing world. Lenders opposed to the longer loans feel consumers with fair credit are buying too much car and are therefore more likely to eventually default.

Turns out, according to Equifax data quoted in the article, these 7-year loans are the least likely to end in default among consumers in the 630-to-680 credit range, which is considered “fair” credit.

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Ultra Long-Term Car Loans: A Great Idea!


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.

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Stretch the Car Loan or Buy a Cheaper Car?

2014 Lexus IS 350

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?

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