Just because you can, does that mean you should?
Most of us know the answer to that. There is a time to stop wearing miniskirts just as there is a time to stop using the word “dude.” Most of us recognize that time, even if it’s a little belatedly in some cases.
So who thinks a 96-month-car loan is a good idea? Everyone has heard someone say they have a 23-month-old child, and your brain tells you they have a two-year-old. Though that parent is striving to be precise, in the car industry that number fudging is being done for the opposite reason: to muffle the noise around the fact you just signed on to take eight years to pay off your car.
It’s easy to blame banks or dealers, but it’s consumers who have created this. For as often as a buyer might be massaged into a car they can’t afford, that buyer allows himself or herself to be talked into buying a car a month at a time.
Before the implosion of the car industry, people who stood helplessly in a dealership unable to make the numbers work were introduced to leasing, once the domain of high-end cars and business purchases. Don’t have $750 a month to purchase that car? No problem. Let’s lease and watch that number plummet. Honey, for only 28 bucks more a month, we can have the leather interior! Another 10, the kids can have their own video players! And at the end of the lease, you hand back your rented car, and walk home.
Except you usually don’t. Leasing can be like a meth addiction: by the end of the lease, you realize your charges for mileage overages and “reasonable” wear and tear (was there ever a more subjective clause?) will swamp you, and the only way to ratchet them down is to roll over into a new transaction with the same dealer. Hooked. Your (car) dealer doesn’t want to lose a customer, and you realize how easy it is to keep going.
My favourite argument, ever, on why leasing is magic goes like this: the money you save by leasing over buying goes into a separate account. At the end of the leasing term, you have a pot of gold to go buy another car. Except you didn’t have that margin of cash to begin with, which is why you are leasing. Hans Christian Andersen had nothing on a good salesman.
When the leasing industry effectively shuttered its doors for many outlets, there had to be a new go-to option for getting that payment lowered. Again, because so many stare only at that monthly amount, it wasn’t difficult to stretch the term to keep the customer. Forty-eight months was a stock term just a few short years ago. Four years, at which point you owned your vehicle and could start deferring some funds for maintenance that would be required outside of warranty.
Now, in Canada the average term is 62 months. I heard a VW advertisement the other night for 84 months. I actually looked up at the TV. Then I did some counting. Seven years. It took little digging to find out even that was child’s play: 96 months is being offered by some dealers and banks alike.
In a rush to make the most money off the biggest demographic, loans like these are eerily reminiscent of a time when people south of the border were being offered similar fabulous deals, but on their homes. What’s not attractive about being told there is a way to have what you really, really want when you believed it was outside your reach? We all watched the U.S. mortgage market crumble, as houses plunged underwater. The most troubling part? Real estate historically has appreciated, or at least held its own. My Santa Fe, much as I like it, is not destined to be a collector’s item any time soon.
So how do you sign on to a loan you can afford? It’s easy to say just buy less car. But people frequently head into a dealership with one type of car in mind, then quickly get lured into another part of the showroom, especially when they see it’s “only” this much more a month. Stick to your plan; most manufacturers are producing highly competitive cars in every segment, and don’t be nabbed by howdy doody add-ons you don’t need.
Can’t find a new car in your price range? Go used. Cars are lasting longer – anyone who talks about the good old days when it comes to cars is wearing rose-coloured glasses. You can’t beat the safety features and technology in modern cars, even those a few years old. There is far more leeway in the cars available than there is in your budget.
Snoop past the icing on these deals, the zero per cent financing and the no-money-down. Add up the total cost, take a hard look at the shiny asset that will only become a liability, and decide if you want to be making payments when your third grader starts driving.
Sorry, I mean your 96-month-old.
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