There are many ways to shop for a car, and just as many ways to shop for a car loan. Finding the best deal on the financing is just as important as negotiating the best price on the wheels themselves, and this article should help to shed some light on the sometimes myseterious world of auto financing.

Watch the Loan Length

There has been a growing, and somewhat disturbing, trend over the past decade to extend the length of car loans, until some have begun to resemble mini-mortgages more than auto financing. While the standard length of an automobile loan used to be no more than three, four or five years at the most, these days there are six, seven and even eight year car loans. Can the thirty year car mortgage be far behind?

In many ways this trend is perfectly understandable. The prices of cars have certainly gone up quite a bit in recent years, and in most cases the price of new cars has risen more quickly than either real wages or inflation. With earnings not keeping pace with car prices, it is easy to see that our earnings buy less car than they used to, and that extending the term of the car loan helps to lower payments.

What Long Term Car Loans are Dangerous

While it is certainly desirable, and even necessary, to keep the monthly car payment as low as possible, financing a car for six, seven or even eight years can be quite dangerous, and quite costly. Unlike homes, which tend to only go up in value, a cars value has nowhere to go but down. The moment you drive it off the lot, that new car is worth considerably less than you just paid for it.

This depreciation will continue as the car ages, and by the time the car is six, seven or eight years old, it will be worth only a fraction of the purchase price. By financing the car for so long, the buyer runs the very real risk of owing more on the car than it is now worth. This is an untenable situation when it comes time to purchase another car, and it can lead to a never ending cycle of long term car loans.

The situation can be made even worse in the event the car is totaled in an accident. The insurance company will not care how much you owe on the car loan; they will be interested only in how much the car is worth. If the car is worth less than you owe on it, you will be responsible for paying the bank the difference between the insurance settlement and the amount owed on the loan, and in most cases that money will be due immediately.