Advertisements perpetually inveigle consumers to rush-down to year-end, close-out car sales with dealership financing as low as absolutely never having to pay a red cent, ever! But, what is behind these seemingly great offers of automotive financing? What is the too-good-to-be-true reality dealerships are desperately trying to hide? The answer: Well, it depends—but it's sure, whenever rates are low enough to bug-out your eyeballs, there's some catch. The problem is that the catch changes—so, reading fine print becomes essential to finding the right deal.
One situation consumers should invariably avoid is long-term auto loans. Unlike homes, which tend to build equity through the paying of principal and appreciation, automobiles depreciate with phenomenal speed (computed in the standard automotive equation format, example: 60 grand to 30 grand in under three years). Due to this depreciation, owners wishing to rid themselves of aging machinery before their auto loan is paid off, find themselves in an unusual predicament (as though some predicaments are usual).
Perhaps an example will help to elucidate the seriousness and helplessness of long loan term ails: Let's say you purchased a brand-new Honda Accord in 2001 for, roughly, $30,000. Let's say you accepted dealership financing that included outstanding rates—no APR (which stands for annual percentage rate—a way to calculate interest) for the first 36 months. The life of the loan was 72 months (that's 6 years if you're uninterested in doing the math). Here's where the problem arises: after three years, due to several job raises and promotions, you've decided to revamp your image with a slightly more expensive and dazzling vehicle, but, you've half your loan to go.
Well, instead of tacking on the remaining portions of auto loans onto monthly payments for your newly financed car, dealerships will most often add time onto the loan term—stretching a 72 month auto loan into 84 months, and so on. What happens is that an increasing number of consumers find themselves in an automotive, financial hole without the appearance of a ladder out. Stuck continually paying both principal and interest on cars that were long since sold or traded in, consumers are lured into this indentured servitude of dealerships for, in some cases, decades. Watch out.
Visiting outside banks and lenders (even the occasional online lender vendor) presents itself as a viable alternative to the world of dealership financing. Without the shady terms and weaving rates, consumers can readily secure auto loans with rates and lengths expressly and explicitly denominated. Online car loan quote scout sites provide customers the option of searching the vast databanks of the internet for good lending deals—just remember: if you're securing a loan through an online vendor, please inquire as to the reputability of their practices (the Better Business Bureau is an excellent resource).
Dealership financing, while almost always sounding good, is not always a consumer's best bet in the long run. Be sure to involve outside lenders in your quest for auto loans, and be sure to read the small print and consider the possible consequences of long-term loans. You don't want to find yourself still paying off cars when you're too old to drive.
By Jean-Pierre Lacrampe