Extending loans an extra year can easily add $6,000 to vehicle price according to Requisite Press Study
Long-term financing your next truck may sound like a good way to keep monthly costs down.
But in the long run it’s costing your company thousands of dollars just to get an extra year on a loan for a $30,000 truck.
According to a report today from Requisite Press, LLC at November prices, buyers that financed with a 6-year loan instead of 5-year loan could spend an additional $6,016 while keeping payments the same.
In a survey of consumer new-car buyers, Requisite Press found that nearly half (46.3 percent) of those that had taken out a long-term loan (61 months or longer), would have selected a less expensive car if limited to a 60-month loan.
Assuming current auto financing trends for loan term and the survey results, along with the November sales volume, the study concluded that the total increase in spending due to long-term loans was more than $1.4 billion.
“The numbers are big when taken in aggregate, but the damage is done at a personal level,” said Phil Kelton, President of Requisite Press. “A lifetime of using long-term loans to boost spending, results in a lot less retirement savings—clearly a hit to family financial security.”
Requisite Press recommends that consumers avoid the need for long-term loans by maximizing their buying power with nonnegotiable competition at every step in the car buying process—sales price, trade-in, financing, and add-ons.
In addition, following the 20-4-10 auto financing rule will preserve family financial security.
The 20-4-10 auto financing rule, which could also benefit small business owners, consists of a minimum 20 percent down payment, a maximum 4-year loan term, and monthly payments of no more than 10 percent of gross household income.
The rule is widely recommended by personal finance experts to maintain financial security, avoid excessive interest costs, and preserve future investment opportunities.