The problem is that the majority of consumers are driven by always having something new and can’t settle to hold on to an old vehicle. These are the same people who don’t make extra payments either.

So yes, done properly there is nothing inherently wrong with a 7 year car loan over a 4 year loan for the right people who can make it work for them. The problem is just people getting into these loans just to lower their payment so they can afford it.

I agree with the rest of the post, but want to be nit-picky about this one point. Even if you buy a car for $20K, and finance it for 6 years, and you can’t sell it at the end of 6 years for a reasonable amount (ie, almost worthless), it STILL presumably is worth 1 car. That is to say, it still probably performs reasonably well in its chief duty of moving you from point A to point B.

This is a subtle but important distinction. A person might get to the end of their outrageously long 6 year loan and look at their paint-falling-off, ugly, ripped-seat, can’t-get-$500-for-it car and make the mistake of thinking it’s “worthless” and therefore they need a new car, when in reality they might be able to squeeze 2 more years out of it. 2 years of no car payment even at a low payment of $200 a month is still $4800, a pretty nice chunk of change.

I think living in a home might be inheritly different than driving the same car. I’ve moved about 3-4 times since I bought that car (mostly renting), but each time the car has come with me. That’s the nice thing about cars, they are portable and can move with you.

The other thing to note is that usually it’s not bad thing to get a long loan as you can make extra payments and pay it off quicker. I figure you can always make extra payments on a $200 loan, but the bank really frowns on you paying $200 on a $900 loan. By choosing that short loan, you are making quite a commitment that simply a lot of people aren’t in the position to make.

I put around 22k miles on my car a year and if I were to keep that car for the length of a 7 year loan it would have over 150,000 miles and be worth about $1,000 bucks. Not to mention the potential reliability issues, having the warranty expire, etc.

The worst is when people get into these long-term loans and trade in their cars every few years. Even after two years you have paid a ton in interest, very little principal and the actual value of the car is 25-40% less than what you paid, and probably even less than the remaining balance on the loan. So these people are in a perpetual cycle of losing money every few years.

But hey, at least they can impress their friends with their new car so they feel better about themselves.

“The longest? I hope that means five years.”

“No, I think seven. That’s how long we did the other car.”

They’re going to be paying for cars forever.