After watching gas prices skyrocket, savvy buyers in Florida are thinking twice about big purchases like vacations, automobiles, and homes. While speculation seems to be vacillating between optimistic and decidedly less than, consumers are left with questions and not many answers. Does it make more sense to drain your savings to pay for a new vehicle or to finance with any number of loan options?
The right choice depends on a number of considerations beyond mere financial leverage, though feasible repayment terms are certainly a primary concern. Things to think about include:
- Will the vehicle be your sole transportation?
- For the long or short term?
- Will it be used for work?
- Will it fit your family, now and in the future, when that long-term loan is finally paid?
Once you've solidified your needs, and that financing is, indeed, the best option, then determining the loan specifics is the next hurdle. With a longer loan term (48 to 72 months) comes smaller payments, but higher cost in the long run: interest adds up! Contrarily, shorter term loans (24 to 36 months) can reduce the total cost of the vehicle, but take a solid chunk out of your monthly income.
For most, long-term loans will prove the less fiscally responsible option. Not only do the smaller monthly payments fail to offset the larger final cost, but the loans have a higher likelihood of becoming upside down as the car's value depreciates with age. Not only is the negative equity of an upside down loan concerning, but they are particularly problematic if you have an accident and your car is a total loss: if insurance fails to cover the full cost, you could continue to owe payments on a car that's totaled.
Long-term loans also usually come with significantly higher interest rates, meaning a substantially larger final price tag when the car is paid off. Even when the rate matches that of a shorter term option, the loan will still accrue substantially more interest over its extended life. As the Federal Reserve regularly raises benchmark interest rates to offset inflation, a host of unknown interest-related factors become increasingly important.
But, there are options if you're having difficulty getting approved for a shorter term loan, or they are cost prohibitive, and you still want to avoid the pitfalls of a longer term loan. Obtaining a cosigner to bolster your credit rating might pave the way for a short term, low interest loan. Additionally, offering a substantial down payment can lower monthly costs by decreasing the amount requiring financing and increasing the odds of optimal lender rates. Finally, consider leasing. The approval process is typically much easier and it gets you behind a new(er) vehicle without the long term commitment and cost.
For any car insurance questions, call or contact Post Insurance and Financial today.