A case for shorter term loans

Get$Fit tip for how to save money on your auto loan

Shop smart on your next loan

Is a longer-term, lower monthly payment loan saving you money?

Probably not.

Lower monthly payments of longer-term loans often come with higher interest rates, which means you end up paying more money over the life of your loan.

When it comes to borrowing money, it’s wise to consider the total cost of your loan.

If you can afford a higher monthly payment, accepting a shorter-term loan could save you thousands of dollars.

lower monthly payment and a longer loan term may cost you more money overallLet’s crunch the numbers on a 48-month (4 year) and 72-month (6 year) auto loan with example an example rate of 2.89% annual percentage rate (APR) for 48 months and 3.89% APR for 72 months for qualified buyers. Rates are for illustration purposes only; See a lender for current rates.

On a $30,000 new car loan, total interest increases from $1,805 for a 48-month term to $3,687 for a 72-month term – a significant cost difference of $1,882.

Focusing on the total loan cost will help you avoid buying more car than you can afford, plus help you avoid owing more on your car than what it is worth.

The longer the financing term, the more susceptible you are to having negative equity and being upside down on your loan.

A typical new car can lose close to 22-percent of its value in the first year, and roughly 12-percent annually in years two through four, according to data from the online car-pricing company Edmumds.com.

If you do go with longer financing, consider buying Guaranteed Asset Protection (GAP) coverage to help mitigate the risk of negative equity and having to make additional principal payments after a total loss. Having GAP can help with the difference between the primary insurance settlement and the outstanding balance on your vehicle on the date of loss. Ask your lender for details.

Get$Fit Tip: Before car shopping, get pre-qualified for financing so you know your numbers. Then, stick to your budget.

Our lenders are happy to answer your questions, even if you are not an RCB Bank customer. Connect with a lender in your area.

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RCB Bank Learning Center articles are for education purposes only. Opinions expressed above are the personal opinions of the author and meant for generic illustration. Scenarios, terms and rates shown are only examples as of May 2018 and are subject to change without notice.  Member FDIC and Equal Housing Lender, RCB Bank NMLS #798151. Brad Ward, NMLS #536616.
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Prepare before you step inside a dealership

Ways to improve your car buying experience

inside of car dealership

Buying a car can be intimidating, even if you’ve done it before.  Sales people, negotiations, paperwork  – it can be a whirlwind of emotions. For most people, buying a car is the second largest purchase they will make in their lifetime. A little preparation before you step onto the dealership floor may improve your car buying experience.

Get preapproved.

If you know the financial institution you will be using to finance your next car, get preapproved for a loan so you know your budget upfront. Car shopping is less complicated when you know your maximum purchase price. It’s easy to get blinded by a shiny new car and all the extras only to find it is out of your budget.

When you have your financing approved, you can focus on other aspects, like car reviews and purchase price to ensure you are getting the best deal.

Do your homework.

There are a number of websites to research the dependability and safety of cars. Find out what similar cars are selling for in your area. Then, compare your potential purchase to its value on websites such as Nadaguides.com.

Trade in your car.

If you will be trading in your car, know the payoff amount and make sure the dealer will pay off your loan in full. Research the value of your trade-in to know what you should expect before going into the dealership.

Think through term limits.

Don’t overpay. An important, and often overlooked factor in auto financing, is the loan term. The loan term is the number of months you have to pay off your car. Many dealerships will finance a car for seven or even eight years. This may look good on paper but you must think long term.

Before you sign, ask yourself:

  • Will I own this car for seven or eight years?
  • Will the car’s value still match my loan payoff?

People forget to ask these questions before they purchase, and some end up upside down in their car. This means their loan payoff is more than the car is worth and they have negative equity.

Watch your overall interest cost. While financing a longer term may allow you to buy a more expensive car at a lower monthly payment, you will also pay more interest on long-term loans. Always compare the potential outcome and consider what is best for your future car buying experiences.

You are the customer.

You decide where to finance your car, not the dealership. While dealerships may have a competitive rate or loan term, ask yourself some questions.

  • Does the dealership have my best interest in mind?
  • If I have problems with my loan, who will I call for help?
  • Does the dealership know me better than my bank?

You hold the cards when it comes to where you finance your vehicle, so do what feels comfortable to you.

Our lenders are happy to answer your questions, even if you are not an RCB Bank customer. Connect with a lender in your area.

Opinions expressed above are the personal opinions of the author and meant for generic illustration purposes only. Member FDIC and Equal Housing Lender. RCB Bank NMLS #798151.
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