Q: “Is it really so bad to get a seven- or eight-year auto loan, given that interest rates are so low?”
—Melanie Lacroix, Toronto
A: Low interest rates—as low as 0% for 84 months—have made it possible to extend the length of car payments to unforeseen lengths. Consumer finance expert Eric Brassard says at interest rates below 3% you shouldn’t worry about the term of a loan—but you should invest the savings from the lower monthly payments instead of spending it on something else! One concern with long auto loans is if you decide to trade the vehicle early, say in the fifth or sixth year, you will owe more money than the market value of your vehicle. That’s called being “upside down” in the car business, and can begin a costly cycle of financing the unpaid balance on the purchase of your next vehicle.
George Iny is the president of the Automobile Protection Association.Send him your automotive questions at [email protected]