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How many years should it take to pay off a car?


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Answered 2007-09-11 23:10:58

Your vehicle loan has much to do with where you live, what type of vehicle you are investing in (i.e.; make, model, number of miles and age), your past and current credit (Auto and Classic) situation, Interest (or Finance) Rate (A.P.R.) and other mitigating factors (such as monthly investments (payments) and initial investment (money down).

Unfortunately, your is a difficult questions with variable and compounding answers.

I will attempt to itemize the above issues with a set formula to try to make it make sense to you.

"Marie is a 22-year-old graduate looking for her first vehicle loan after coming out of Ohio State University. While she has a few credit card with a few late payments, she has never financed a vehicle and therefore has no established auto credit. She is looking to stay in a monthly payment of no more that $350 (10% of her income) and putting down $1000."

OK, get that? Basically, Marie has somewhat negative but, moreover, little established credit. That does two things: a much higher interest rate (up to 24.99% in Ohio) and a shorter term allowed by the bank in which to pay off the vehicle. Essentially, in this particular situation, Marie will get less car for her money, but will pay it off more quickly than a 'conventional' loan.

So, for example: If Marie qualifies for what's called a '1st Time Buyers' Program' and receives a 17.99% rate with a 6.75% sales tax, to achieve her target of $350 a month, she would have to finance no more than $13,659 (not including document charges and dealer fees) for a period of 60 months. This is a standard 'sub-prime' loan. If Marie drops to a 'short-term' loan of 48 months, the rate will drop to approximately 14.99%; under the same above terms, her amount to finance could not exceed $12,545 (again, with no fees included).

Conversely, Bill is a 42-year-old 20 year veteran of his Columbus investment firm. He earns six figures and has just been promoted to parter. His credit is top-notch; his future secure. Bill decides to put down the same $1000 as Marie but qualifies for a 2.9% rate for up to 60 months. Thus, he can payoff the same $13,659 vehicle in only 42 months.

To make a long answer relatively longer. How long you chose to finance is up to you; simply bear in mind the amount of interest you are going to invest during any given term versus the vehicle you are getting.

Sales or financing questions? email me at mgnizak@gmail.com

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