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Car Loan Amortization

If you have bad credit, perhaps a longer term is the best way to go!

 

In the early 1980’s, Chrysler began offering longer new vehicle warranties. Their competition quickly followed suit. Build quality improved drastically and as a result, financing the vehicles over a long period of time became feasible for the banks.

As a result of better build quality and longer warranties the car of your dreams might become a reality. Let’s compare five and seven year loan terms, you’ll be shocked to see the difference two years can make!

The cost of the vehicle you want to buy
Your term period
Interest rate2
Your monthly payments
$25,000
5 years
7.50
$500
$25,000
7 years
8.00
$390

*Chart is for illustrative purposes only. Example assumes term equals amortization.

As you can see, a seven-year term can lower your monthly payments to make the vehicle you want more affordable.

Do you have a monthly budget in mind? Do you want to get the most for your money?

Choosing a longer term loan can allow you to buy a more expensive vehicle for the same monthly cost as a lower-priced one. What’s great is that you can use the extra purchasing power to select a model or features that meet your needs for added cargo room, safety or new technology features like hybrid power.
Below, we will use an example of a fixed budget of $500 month. I have taken into account the fact that longer term loans tend to have higher interest rates. As you can see; same payment but $7100.00 in additional purchasing power! Wow!

Your monthly payment
Your term period
Interest rate2
The value of the vehicle you can afford
$500
5 years
7.50
$25,000
$500
7 years
8.00
$32,100

*Chart is for illustrative purposes only. Example assumes term equals amortization.

As you can see, a seven-year term can help you afford more of the features you want by making your budget go farther.

Terms Banks make Available

Banks are still risk adverse. As a result, they take into account the age of the vehicle when determine the length of the amortization. With the multitude of extended warranty options available, perhaps the 3 year old car of your dreams, with an extended warranty and a 72 month amortization is exactly what you need!

Your amortization period
Loan eligibility based on vehicle age
60 months
Current year plus seven prior years
72 months
Current year plus three prior years
84 months
Current year plus one prior years

*Chart is for illustrative purposes only

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