About

Car prices are high right now for both new and used vehicles. That’s leading many folks to make a big mistake when financing. Art Rainer joins Rob West today to help you avoid that mistake. MoneyWise contributor Art Rainer is vice president of The College at Southeastern and the author of many books on life and finances from a biblical perspective. The average price for a new car is now almost $46,500. That’s up 14-percent from a year ago. That’s largely because factories can’t get parts, mainly computer chips, and that’s limited production of new vehicles. That, in turn, has raised demand for used vehicles. And all of this is causing some folks to make bad decisions when financing. When it comes to cars, the best way to purchase them is with cash. However, many opt to finance their car with debt. And some of them are signing long-term (beyond 60 months or 5 years) loan agreements to get that car. According to Experian, around 25% of those who financed their car did so with a loan between 73 and 84 months. 84 months that’s 7 years! A long-term loan reduces the monthly payment, making the car appear more affordable.But the appearance of affordability is deceiving. These longer term loans are quite simply bad deals. REASONS WHY LONG-TERM LOANS ARE BAD DEALS 1. You start out underwater.This mainly applies to the purchase of new cars, which drop significantly in value as soon as you drive them off the lot. But all cars, new or used, are depreciating assets. They don't increase in value. The smaller payments in longer-term loans don’t allow you to keep up with the car’s depreciation. If you decide to sell the car before the loan is complete, you may have to bring money to the table just to get rid of it. 2. You pay a lot of interest.This happens two ways. First, your longer-term loan ensures that you’ll pay interest over a longer period of time. Consider the difference between a 30-year mortgage and a 15-year mortgage. Because the principle does not decrease as fast with a 30-year mortgage, you end up paying around two times more interest than the 15-year term. The same is true for car loans. Second, longer term car loans tend to have higher interest rates than shorter term loans, usually after the 60-month (5-year) mark. Cars are almost always bad investments, outside of their function to get you to and from where you need to go. 3. You’re more likely to make payments and pay for repairs at the same time.Even with a new, reliable brand, you’ll probably have some type of repair need in year five, six, or seven. All cars eventually wear down. This is especially true when you purchase a used car. And so while you’re spending money to repair the car, you still owe money on your car loan. The double hit can have significant consequences on your finances. THE SOLUTION? Consider the cost of the car. If possible, look for cars where you can pay cash (no debt). This means that you may not be able to purchase your dream car right now. And that’s okay. Art Rainer’s been our guest today. You can find out more about him and his books and articles on God and money atArtRainer.com. LISTENER QUESTIONS On today’s program, Rob also answers listener questions: ●How do you determine if a will or a living trust is best for you? ●What is the best way to prepay a mortgage? ●What exactly is cryptocurrency? ●How do you figure out whether it’s best to rent or buy later in life? ●What is the best way for a young adultto choose a loan to begin building credit? RESOURCES MENTIONED ●NerdWallet Remember, you can call in to ask your questions most days at (800) 525-7000 or email them toQuestions@MoneyWise.org. Also, visit our website atMoneyWise.orgwhere you can connect with a MoneyWise Coach, join the MoneyWise Community, and even download the free MoneyWise app. Like and Follow us on Facebook atMoneyWise Mediafor videos and the very latest discussion!Remember that it’s your prayerful and financial support that keeps MoneyWise on the air. Help us continue this outreach by clicking theDonate tab on our websiteor in our app. To support this ministry financially, visit: https://www.oneplace.com/donate/1085/29