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Beware downside to longer car loans, experts warn


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SALT LAKE CITY — If you're in the market for a new car, you might be tempted to take out a longer loan for lower payments.

However, experts say a long-term loan can wreck your finances.

Cars are selling better now than they have in nearly a decade, with 2014 being the best year for automakers since 2006. Analysts attribute the increase to a perfect storm of factors including cheaper gas prices, lower interest rates and older cars. The average car on the road is now nearly 12 years old. All that pent-up demand since the recession is bursting at the seams, according to consumer advocates.

"People are looking to buy new vehicles, with gas prices the way they are. (It) totally changes a person's budget," said Joy Chavez of the AAA Fair Credit Foundation.

Consumer advocates are concerned about a side effect of all that buying — a surge of long-term loans stretching six, seven, even eight years.

Just four years ago, less than 10 percent of loans were 73 to 84 months long. Now, the auto information wesbite Experian Automotive says that range makes up nearly a third of new car loans.

That's very appealing for car shoppers who are focused on a lower monthly payment, Chavez said.

"It is a lower, more affordable payment. The other part of it is car dealers may be trying to sell cars that may be a little too expensive for the consumer and to help them get into the car," Chavez said.

With a more affordable payment, what's the problem? First, your total interest payments will be higher the longer your loan is. Also, Chavez says you'll always owe more on the car than it's worth. That can spell trouble when your life hits a speed bump.

"If they're trying to stretch their budget too far, because that's dangerous. That's where you run into those risks of repossession or losing the car," she said.

Some analysts say cars themselves are driving the trend for longer car loans. New safety options and infotainment systems are tempting enough to persuade shoppers to go for a car they maybe can't afford, some say.


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Bill Gephardt


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