How Long Is the Average Car Loan?
Car loans are a major expense for many Americans. With such a heavily entrenched consumer culture, Americans are encouraged to purchase new cars every few years. With increased research and development in the automobile industry, new car prices continue to increase at a steady rate. Understanding your options when financing a new or used car is critical to your financial health.
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Average Car Loans
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According to Bankrate, the average length of an American car loan, as of June 2007, was approximately 70 months. This is an increase of eight months from only one year prior. While this certainly isn't the standard, expensive cars loans are often stretched as far out as possible to keep payments somewhat reasonable.
Other Car Loans
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Car loans are determined by the borrower and lender at the time of purchase. Usually the options for car-loan terms are as follows: 12-month, 24-month, 36-month, 48-month, 60-month and 72-month. Payment is calculated on those terms depending on the price of the car, a borrower's income, his or her creditworthiness and any special financing offers.
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Avoiding Long Loan Terms
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Savvy borrowers will secure a loan rate prior to visiting a dealership. To do this, contact a local bank or finance company and have the loan officer work up a car-loan proposal. With such a deal in hand, you'll be able to negotiate with a car salesperson more successfully. Additionally, understanding your own financial limitations will help you avoid pitfalls and temptations when on the car lot.
Benefits
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The benefit of avoiding long-term car loans is interest savings. By choosing a 60- or 72-month loan, you'll be paying far more interest on a rapidly depreciating asset. Many borrowers are tempted by lower payments, but savvy borrowers will realize the long-term benefit of a short car loan.
Warning
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Some lenders will try to force borrowers into unfavorable terms. Again, it's best to secure a financing offer prior to selecting a vehicle. If you feel pressured to make a deal with a salesperson, it's best to back away and seek other options. The bottom line is that you are in control of your finances, and you should protect your money as best as possible.
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