Long Term Loans for Lower Monthly Payments~ champagne taste, beer budget

Feb 17, 2021

The average loan term for a new vehicle purchase has stretched to 71.54 months in the second quarter of 2020 and escalating now in 2021. With increases in loan amounts and higher average monthly payments.  

let's take a look…

-   longer loan terms

  • Increased vehicle price points
  • Higher monthly payments 

Average loan: $583/mo x 72 = $38,736

This means the average person is buying a more expensive vehicle dragging out the loan longer than ever and paying higher interest. This is good how???

During such an unstable time I can’t see how this scenario is good to anyone except the dealerships and the lending institutions.

And apparently it’s the super prime consumers with the largest percentage of increased length on their loans… which does not seem right. 

So the people with the best credit and who I’m sure have financial stability, track their finances and are finically savvy are deciding to pay even more for a car in every way?!  Well according to Experian this seems to be the trend. https://www.experian.com/blogs/insights/2020/09/incentives-loan-terms-making-vehicles-affordable-covid-19/

And once again it all comes down to a manageable monthly payment

Never ever choose a vehicle purchase based on a monthly payment! As you can see in the above example it just does not work for anyone , not the finically strong , weak or those trying to build financial freedom to do the things they want to do in life. 

Please stop buying things you can’t afford to impress people you don’t like.

Do you actually know what you should be spending a month on a car payment based on your income + expenses? How about how much of your annual income on the purchase price of a car? Then we have those things called transportation costs that people seem to not add into this growing figure of debt. Things like, insurance, gas, tolls, maintenance, parking and anything else you might have to pay monthly to own a vehicle.

These are the things that you need to factor in to owning and maintaining a vehicle, not just the monthly payment.

Here are a few standard guidelines to obtain the best deal for you, not the banks and dealerships.

First, a budget to see what you are working with and how much you have to spend. The recommendation is no more than 10%-15% of your monthly income on all your vehicle expenses ( this includes - car payment, insurance, gas, parking etc.) Then the purchase price of the vehicle should be around 20%- 30% of your annual income. 

The 20/4/10 Rule:

20% Down

4  Year Loan Term

10% Monthly Income Car Payment with all transportation costs included 

This may seem a little difficult but it’s that way for a reason and if you cannot purchase a car aligning with these 3 recommendations then you shouldn’t be buying one or you shouldn’t be buying that one! 

Here is an example of this rule in play

 

Vehicle Purchase Price : 20%-30% of Annual Income

20% Down Payment 

Interest Rate based on my Credit Worthiness

Loan Term: 4 Years

=

$420.37 Monthly Car Payment

+

$225.00 Monthly Transportation Costs      = $ 645.37 Total Monthly Car Expense

Total Interest Paid: $1,978 

Own my vehicle in 4 years and can sell with equity and put some money in my pocket or decide to keep it as long as I like without any $420.37 monthly payment.This gives me time to save up for other more important financial goals and reap the benefits of buying smart and not getting trapped by poor car purchase incentives made to keep me in debt and keep the cycle going. 

I hope this helped in showing you that low monthly payments do not help you and to buy what you can afford and what works for your budget + lifestyle. 

Be smart about the purchases in your life that can have such a huge impact on your future.

Stay Safe,
Lori DiPasquale
CEO & Founder
TitleKeyCash.com & Girls Guide to Car Buying

Become a Crazy Confident Car Buyer

 

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