Are You Spending too Much on your Car Payments?
It is common for many of us to purchase automobiles that are too expensive. Often we are keeping up with the Joneses. While the loans that are offered today have longer terms and reduce the monthly payment, there is still an interest component that is making the total purchase price higher than necessary.
If you have been watching or reading the news, chances are you have heard about Canadians record high debt. With the very hot real estate prices in Toronto with record low interest rates, people are buying homes that they can afford today. However, if the interest rates rise, these home owners may find themselves with serious financial issues as a small increase in a mortgage rate can have a significant impact on the monthly payment requirements.
Longer Terms becoming the Norm
The current trend for automobile loans in Canada these days is to have the loan terms over 6 years in length. This can be a risk that consumers should review before signing on the dotted line. Knowing the exact interest on a loan for the different year/length options should be looked into. While having a longer loan (7 years) can lower your monthly payments, often these loans will result in an increase to the overall amount that you are paying in the long run.
Credit Scores & Interest Rates
Lower credit scores will often lead to higher interest rates as these people are deemed higher risk. The want for a new automobile with the latest technology can be tempting. However, if your current car loan is not paid off, trading in your car for a new one and rolling the remaining loan into the new loan is not a recommended approach.
One needs to know their financial state of affairs, and know their exact needs, (not wants). It is advised that one is able to pay their loans without any financial strain. Spreading yourself too thin on expenses, having the latest wants, can come at a price, and if a reduction in income does happen, being spread too thin can put one into financial distress.