Almost everyone does the same thing, we see nice things and we want them. We tend to stretch to obtain the newest clothes, the biggest house, the nicest car. Many people are often so concerned with buying the best in life, that they loose sight of the big picture. Trying for the most expensive vehicle a car salesman will sell you often leads to regret later.
Lenders today are financing cars for longer terms with less (or even no) money down. This makes it easier for us to buy more expensive vehicles while still affording the monthly payments. The current housing crisis is because of similar lending guidelines. I do not mean to say that these loans are necessarily bad things, but they are not ideal for every situation.
Most people trade their vehicles in every two to three years. If this is you, the longer term auto loan with no down payment may not be for you. When you trade, you will still owe more on your auto loan than you can get for trade-in value. Then you either need to put enough money down to cover the negative equity or roll the negative equity over onto the new car loan. Do that a few times and you will not be able to trade out of the next vehicle. In a shorter term loan, or with a significant down payment, you may even have positive equity when you trade it in.
On the other hand, if you keep your vehicle for six to ten years you will have it paid for by the time you go out looking for your next car. In this case, the longer term loan may work out for you.
If your income fluctuates and is unpredictable, such as commissioned sales, the longer term loan may make sense for you. In this case you should plan on making the larger payment associated with the shorter loans every month. Then, if something happens and you either make less or need to spend more one month, you can make the smaller payment and still be current with the bank. Be careful not to fall into the habit of paying the small payment too often or it will become all too tempting to only make the minimum payment every month.
Consider purchasing something you can pay off in four or five years (or less) and think about putting some money down when you buy. If you will only settle for a very expensive vehicle, please think about the big picture. Put some money down or plan on keeping it for several years so you do not end up trapped by your negative equity.
For help obtaining a great car loan, call our auto loan specialists toll-free at 888-300-3502, or visit us at www.WashingtonAutoCredit.com