Driving Car Loans Too Far

By Barbara Kiviat

Slashing your monthly car payment $100 or more may sound great, but if you're getting that deal by signing up for a longer-term loan, you may be taking yourself for a ride. Over the past few years, loans have been lengthening, with five-year loans now common and some banks offering ones up to eight years in duration. But the longer the loan, the higher the interest rate, which means in the end you pay more, possibly thousands more. Plus, at the end of, say, eight years, you'll own a car that's worth very little, says Art Spinella, president of industry tracker CNW Marketing Research. A vehicle that originally cost $30,000 could resell for as little as $5,000. If you sell the car toward the end of the loan, you might still owe more than what the car is worth. Spinella suggests sticking to a loan that lasts no longer than five years and shopping around for the best interest rate. --By Barbara Kiviat