Car loans are one of the best options to finance your car whether used or brand new if you are on the lookout for how you can actually afford them over time, but should you take out loans that last for a very long time such as for 5 to 8 years, well read to find out.
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As car prices keep on increasing, one of the best ways to get the benefits of both owning a car and not having to spend too much is to take out a car loan. Car loans are a very effective way to drive your dream car without the burden of paying it all at once. Once you get to any monthly instalments with specified interest attached to the loan agreement, Thus, a loan agreement is usually ordered with the prerequisite that you will be able to make such monthly payments; if not after a particular time, your car will be repossessed.
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On the surface of things, it looks like a win-win situation for both you and the lender, but an issue might arise if you decide to take out a loan and you are in deep financial trouble and you can’t pay off the instalment for that month. Does that mean that you would have to have your car repossessed? But, is getting a long-term car loan the right answer? Put yourself in a scenario if you want to drive a Mercedes-Benz G Class, which is close to over N50,000,000 for the 2023 model, and if you decide to take a car loan and you are asked to pay a 10 or 20 per cent deposit, which would be around N5,000,000 or N10,000,000 at the initial point for the car, you and the lender would now determine the monthly rate you would be paying off with instalments.
If you decide to go this route, you might be liable to pay N100,000 or more per month, and if that is the case, it might take you a long time to pay off the loan. Would that be the right choice? We have the answer for you.
Why Should You Take Out A Long-Term Car Loan?
- You would be able to pay lower instalments
One thing people would admire about long-term car loans is that you would likely pay low monthly instalments if the loan is for a short period of time, and it is also possible that you should be able to indeed pay off the car loan in the first place without having to rush and have your car repossessed. This means that if you decide to get a 2012 Toyota Camry for N4,000,000 and you make an initial deposit of N800,000, and with the essence of the loan, you can be asked to pay N60,000 every month and the interest on the loan is 5%, which is N3,400,000, it would take you approximately 5 years to complete the loan, which we admit is a good deal.
- You might be able to get an expensive video game
At the end of the day, what is most important about getting a car loan is to be able to afford a car that you can’t ordinarily afford and be able to drive it instead of paying for it outright. So what this means is that having a long-term car loan allows you to drive a car that is more expensive than usual. This means if you are approved, that means you have all the required qualifications to get the loan. You might also be within the means to get a good car or luxury car, which means there is a high possibility of you driving off in a Lexus or Acura if you are able to pay off the interest rate monthly.
- It gives a sense of financial freedom
What this means is that, unlike short-term loans, long-term loans allow for some semblance of financial freedom. What this means is that you don’t have to rush to pay off the loan on time. You would be able to shop for other things around your house and also be able to keep the loaned car on regular maintenance, which you would have to add to your budget.
Why You Shouldn’t Take Out Long-Term Loans
- There is a possibility of a high-interest rate
The first disadvantage of this type of loan is that, unlike short-term loans, you would likely have to pay more money in terms of interest in the first place. This is mostly because the car loan is stretched far and it would not accommodate buying less than ought. Although, there are ways to offset this in a way by paying more for the initial deposit so that it doesn’t affect you in the long run.
- You will likely have to leave interstate overtime
You will have to pay more interest over time; this means that a higher interest rate would be added to your loan, more so because the loan is treasury-backed, making it possible that the market forces at the time of getting the loan are not the same at the time you are paying it off.
One thing about long-term loans is that you would find it hard to get a lender that would allow for such a long period of payment, and this might prevent you from getting it in the first place, although it has a number of benefits and it might be feasible to pay off the interest over time.
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