Prêt automobile à long terme : une solution rentable?July 21, 2016

Long-Term Automobile Rental: A Practical Solution?

If you are looking to buy a car these days, prepare to be patient. The costs and many purchase options can often inflate the bill much more than you would like. While it may be tempting to try to lower monthly repayments of  a car loan, you will want to be cautious. Before deciding on your car loan or signing a contract with a dealer, think carefully and do not let yourself be too impressed by the numbers.

Purchase a Car to Respond to Real Needs

According to the Financial Consumer Agency of Canada (FCAC), on average, drivers change their vehicles approximately every four years. However, more and more drivers are opting instead for car loans stretched out over six years, allowing them to obtain a more expensive vehicle at a smaller monthly cost. However, by reducing monthly payments, the total money paid in interest will become much greater and may well play nasty tricks in the long run. Thus, some motorists find themselves with a car that is valued at less than the amount outstanding.
This phenomenon is not uncommon. Over the last 5 years, the FCAC reports that the number of drivers in this situation has increased 50%.

A Smaller Monthly Payment Does Not Reduce Costs!

The figures speak for themselves. If you purchase a $25,000 car financed at 5% interest over a period of 3 years, your loan will cost you almost $2,000 at the end. However, based on a 7-year period, interest will amount to almost $5,000. So those extra few years – the result of lower monthly payments – will penalize you heavily when buying your next vehicle, since the unpaid amount of your previous loan will be deferred into your new loan, creating a kind of endless loop of repayments.

To Properly Manage Your Car Loan, You Must Start by Managing Your Personal Finances Effectively

Often, poor management of a car loan will be a reflection of poor money management more generally. In order to not put yourself in a precarious situation, take a long-term view. Beyond the monthly costs and the offers that car salesmen make to provide you with a new vehicle as soon as possible, consider the real value of your car. Decide what you can afford to buy and do not waver from that, regardless of the offers that come your way. Put some money aside for the unexpected. Finally, and most importantly, never sign a contract during a first meeting. Better to sleep on a proposal to return in a stronger position to negotiate a better price, more in line with your budget. Make your calculations and, if necessary, review them with a financial planner.

Remember that your vehicle is there to serve you. It must never become a burden to you.

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