Car loans can be as short as three years or as long as ten years.
how long is a usual car loan?
a lengthy car loan is between 6 and 10 years.
long-term loans are given for cars because of the large purchase price–cars depreciate at a much faster pace than other types of purchases. therefore, if the buyer were to have lower monthly payments but no lump sum at the end of term, almost all of their money paid to finance it would go on paying interest for the duration they owned it.
to avoid this, longer terms are more favorable so that some or most or even all part of the cost comes in one lump sum payment – aka an amortized payment plan. so instead of having your original $30,000 investment turn into just paying off interest every month ($5k/year),
is 5 years car loan too long?
“lending is a business, and as such car loans are normally structured as an “annuity”. this means that the lender is accepting little or no risk regarding capital appreciation or depreciation, and instead hopes to profit from the regularity of financing arrangements. it becomes difficult for dealers to offer profitable deals with shorter time periods because it would require them to, either: a) take on an excessive amount of risk in case they need the capital after a few years; or b) charge more up front with less return. the term 5-year loan may not be so long when you recall that most cell phone contracts last 2-years.”
is 7 years too long for a car loan?
claims that car owners are easily lending money to car companies because the interest is not adjusted for inflation ring true according to a recent study.
a 2011 report from representative darrell issa found that consumers would have been better off by approximately $2,700 if they had put their monthly payments into a savings account rather than a new vehicle loan. examples like this show the huge amounts of risk involved in taking out loans from car manufacturers from 7-10 years.