Long-term Car Loans Cost Buyers More Money

June 4, 2013

Unlocking Word Meanings

Read the following words/expressions found in today’s article. 

1. loan [lohn] (n.) – a sum of borrowed money
Example: My father applied for a bank loan so we can buy a bigger house.

2. term [turm] (n.) – the amount of time in which something lasts
 Example: The term of his bank loan ends in December this year.

3. installment [in-STAWL-muh nt] (n.) – a series of payments for a debt
Example: She pays the bank monthly installments of $1,500 to settle her $18,000 debt.

4. add insult to injury [ad IN-suh lt too IN-juh-ree] (idiom) – to make something bad even worse
ExampleTo add insult to injury, the insurance company refused to pay for the repair after the car accident.

5.  the bigger picture [thuh BIG-er PIK-cher] (idiom) – the overall situation or the most important part
Example: You can look at the bigger picture if you focus on the whole idea instead of the details.


Read the text below.
Car loans are now becoming longer than before, causing higher interest rates that worry some financial analysts.

More and more people are choosing six to seven-year terms for their car loans, with some even stretching to eight years. In the last quarter of 2012, the average car loan reached 65 months or nearly six years, a new record in the car loan industry.

Long-term loans are becoming popular because they allow the buyers to buy a car at lower monthly installments. However, analysts say that choosing longer loans is a wrong financial choice.

With longer loans, the buyer pays more interest because payments are stretched out over a longer period of time. To add insult to injury, interest rates are typically higher for longer loans.

To illustrate the difference, Consumer Reports analyzed the purchase of a car worth $30,520. With a four-year loan, the interest rate would be 3.39%, resulting in a total cost of $34,702. With a six-year loan, however, the interest rate would be higher at 3.99%, increasing the total cost to $36,339. The difference between the four-year and six-year loans is $1,637, which can be higher for seven-year and eight-year loans.

According to Jack Gillis, author of The Car Book 2013, buyers need to look at the bigger picture when choosing car loan terms. Instead of just focusing on making monthly payments lower, buyers should also look at the total cost of their loans. Gillis thus suggests that any car loan should not be longer than 48 months.

Viewpoint Discussion

Enjoy a discussion with your tutor.  

Discussion A

·         Do you agree that short-term loans are the wiser financial choice? Why or why not?
·         Would you rather apply for a long-term loan and pay a higher interest or get a short-term loan at a lower interest rate? Explain your answer.

Discussion B

·         Do you believe that cars are good investment? Why or why not?
·         If you had to buy one car, what kind of car would it be and why? Discuss with your tutor.


June 4, 2013