Car loans are complex and simple at the same time. Each loan is tailored to meet the needs of the consumer, as well as the lender extending financing. Depending on a person’s financial situation and the terms of the car loan, it is not always easy to give a number for average loan duration. Regardless, keeping these factors in mind, Good Fellow’s Auto Wholesalers can give a rough estimate as to how long car loans typically last in Canada.
Why Have Loan Lengths Increased?
In the past, a typical car loan would last for five years, but these days consumers are seeking lower payments instead of shorter payment periods. They can achieve this by seeking loans with lower interest rates and longer repayment terms. This is great for buyers in the short run and better for lenders in the long run.
Lenders are not losing money by offering lower payment. In fact, the longer a loan is active, the more money a lender will make over time. For consumers, even though the end price is higher, the ability to pay smaller amounts over a longer period makes buying a new car less of a burden.
More Reasons Loans Have Gotten Longer
Another reason that the length of car loans has increased is that the average cost of a car has also gone up. There are still plenty of affordable options out there, and of course, people are still buying them. However, more and more of the population is moving towards flashier, more expensive cars. The higher the price tag, the more it will cost each month, and to keep those payments low, a consumer will need a longer car loan.
The Downside of Longer Loans
Longer loan terms are a win-win in many cases, but that doesn’t mean there are not some negative aspects of the whole deal. One downside is that a consumer will end up losing money over time paying interest. This is important because the rate of interest is not calculated as part of the car’s value, no matter how long you happen to pay on your loan.
The longer a consumer is paying a loan, the more time they spend paying interest as opposed to paying off the actual cost of the car. Depending on the type of car and the length of the loan, the cost of interest may even surpass the actual value of the car itself.
Another often overlooked aspect of longer loan terms is the cost of car insurance. As long as a person holds a car loan, their premiums are going to be higher than if they purchased their car outright.
The Bottom Line
With car loans getting longer every year, it is easy to end up paying much more than your car is worth if you are not careful. There are also associated costs with long-term car loans that many people fail to calculate.
There is no ideal length of time to have a car loan, but it is always a good idea to check the long term cost before entering into an agreement. If you are interested in learning about car loans and the best auto financing options for your situation, Good Fellow’s Auto Wholesalers can help. Give us a call at 1 (855) 581-9590 to find out more.