Video: The risks of long-term car loans
For more information about car finance that works for you, visit Financing a car.
Lucie Tedesco, Commissioner, Financial Consumer Agency of Canada
If you’re shopping for a car, chances are you will need to finance your purchase.
You may be offered car loans with repayment terms of 6, 7, 8 years or even longer. That’s a stretch from the traditional car loan of five years or less!
Be careful about getting over-extended.
Here is what I mean. Let’s say you have a 7-year loan and, like many, you want to trade in your car after 4 years. You may owe more on your car than it’s worth.
(Loan for: 7 years
Sell after: 4 years)
In that situation, you may be offered the opportunity to add the remaining debt to a new loan. That means a bigger debt, possibly at a higher interest rate.
(3 years’ payments)
+ new loan
= more debt!)]
So if you don’t want to keep paying for a car you’re no longer driving, be sure you understand the implications of a long-term car loan before you sign on the dotted line.
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