More Auto Buyers Turning to Leases and Longer-Term Loans

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Have you ever considered financing your new car for 84 months? That’s a full 7 year loan! Granted, I’ve had my share of 72 month loans. Heck, our Chevy Malibu was a 72-month finance, but we paid it off in just 2 years!

But not everyone is getting these lengthy loans with the intent to pay them off early. If you really wanted to save money on interest and intended to pay off the loan early (but couldn’t pay cash outright for the car), then you should finance for a shorter term, like 3-4 years at most. Not only will you get the right loan, but shorter loans also come with lower interest rates. I know, I know, you balk at the $600-800 payment of that shiny new Acura (or even Honda). But maybe that means you should be looking at cheaper cars instead, or even used?

But long-term loans are a disturbing trend. They’re not a large part of the economy by any stretch, but just the fact that they exist, along with financing chrome wheels and custom exhaust systems, just shows how far America is stretching itself to possess things that they really can’t afford. Oh, and we have Toyota to thank for introducing this great financing option to America.

Along with long-term auto financing, leases are also on the rise at a quickening pace. According to this Autoweek article, leases were almost 1/5th of all new car sales contracts last year (2007) and they’re expected to be above that this year. BMW leased 62% of its sales last year alone!

Leases do have their merits, but that’s for a different article. For now, I want to illustrate the “rent-to-own” lifestyle we’ve become. Back in 2000, I bought a $20,000 Saturn LS300 on a lease, then traded it in on an Acura TL-S just 9 months later (losing $6500 in the deal). Around the same time, I talked my grandmother into a lease on her 2002 Mitsubishi Galant. The payments were at least $150 per month less, but it was a 5-year lease, and she’s still paying on it! It’s now 6 years later and she refinanced the balloon for another 3. She has 2 more years to go to finally pay off a (now) 6-year-old car with only 24,000 miles. Nine years and she’ll finally own her car, if she can even still drive it by then.

But one line near the end of the article brought some hope:

“Over the last several months, some people coming to the dealership to look at a new vehicle ended up buying a used vehicle because the payments are lower,” he says.

Used is always best because you’ve beaten most of the depreciation and you’ll own the car in the end. But that doesn’t mean you should buy more than you need just because “it’s used and I’m getting a deal”. Common financial sense still applies. Then again, perhaps the first question you should ask is “Do I really need a new car in the first place?“.

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