Pros and Cons of longer (>48 months) loan terms? (car payments, mileage, buy)
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Pro: Longer term allows a lower payment, making it fit easier into a monthly budget.
Con: You pay more interest over the life of the loan with a longer term.
I think you summed it up pretty well, with the exception of one Con. You do risk being upside down on your loan when you extend the term out. It's not an issue unless you sell/wreck the car and have to make up the difference.
One thing people never understand on these 0% loans is that there is no such thing as free money. You can very often receive a lower purchase price by not taking the 0% option. You just have to run the numbers to see which deal is better.
I think you summed it up pretty well, with the exception of one Con. You do risk being upside down on your loan when you extend the term out. It's not an issue unless you sell/wreck the car and have to make up the difference.
Few vehicles are going to be covered under warranty for 7 years.
So.. You finance it out to 6 or 7 years and at 75k (or 101k) the transmission falls out.. You're not only paying for a new transmission but you're still paying off the vehicle.
There is no way I would ever chance that I was going to be making payments on a vehicle that was sitting in my driveway not running.
I'm always amazed by the upside down discussions. You pay the cost of the vehicle + interest. The only difference when paid over longer period will be the amount of interest. Yes, you can be "upside down" but this is just because you are paying it off at a slower rate than the depreciation, that's all.
P.S. I personally, don't like to pay any interest.
The upside down discussions exist because life doesn't always work out the way you planned. I had a co-worker who ended up selling her car mid-loan because of personal issues. She had the pleasure of rolling that upside down amount into her next car loan. Yes, she would have paid that amount anyway at some point and effectively just rolled it forward into her new loan. But when you are in a financially distressed scenario, being upside down limits the options you have to move forward.
Longest term with the best interest rate. There's much better places for me to put money than a depreciating asset as long as there's someone willing to give me 0% loans. The longest they'd give me was a five-year loan at which point the interest rate jumped up to about 4.9%. I'm self-employed so that closes off a lot of the more attractive financing options. None of the normal online sources one goes were even interested which left my local credit union which didn't have the greatest rates. So I went with a five year loan at 0% instead of $1,500 cash on the hood.
The other advantage is people can stretch into more car than they could otherwise afford which is generally a terrible idea. I'm just interested in buying what I'm interested in at the best price. I'd be comfortable with payments that are twice what I pay, three times would be a stretch without impacting savings rate.
Upside down doesn't bother me. I considered trading in or selling on my own when I'd had the car a year and a half and probably was a bit upside down, especially trading in. The thought was really contingent on a job that I ended up not getting though where my commute would have been ten miles round-trip instead of the 25,000/yr I now drive for work. Say I was $1,800 upside down. I'd rather be $1,800 upside down and have spent $100 less per month on payments over 18 months. Either way, you eat shirt holding a new car for a year and a half. Being upside down or not is really irrelevant to that.
The upside down discussions exist because life doesn't always work out the way you planned. I had a co-worker who ended up selling her car mid-loan because of personal issues. She had the pleasure of rolling that upside down amount into her next car loan. Yes, she would have paid that amount anyway at some point and effectively just rolled it forward into her new loan. But when you are in a financially distressed scenario, being upside down limits the options you have to move forward.
Yes unexpected stuff happens but if she were paying off that loan faster, she would have spent more money up to the unexpected event.
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