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With the low interest offered at the time of purchase, we chose the longer term loan and then will double/triple up on the payments. This is just insurance that if we unfortunately happen to end up in a financial crisis, we can more than likely keep making the required lower payments keeping us out of trouble.

Bill
 

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2007 Nimbus Grey Metallic RTL
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^^ This has recently paid of for us, too. We took out a 7 year loan on my wife's Highlander for the much lower monthly payment minimum. We typically pay about $150-200 more per month than that payment which has shortened the payoff time considerably. We still have about 14-16 months left to pay on it, but recent employment concerns have caused us to revert to the minimum monthly payment for awhile. It's just good to have the option.

As I've said previously, if you're taking a 7 year loan because that's the only way you can afford the car, you need to find a less expensive car. There is more than a good chance that at some point in the life of that loan, you will be upside down on the loan balance as compared to the value of the vehicle. Never take longer than 5 years to pay off any vehicle - period.
 

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There is more than a good chance that at some point in the life of that loan, you will be upside down on the loan balance as compared to the value of the vehicle.
IMO there's some situations / strategies where being "upside-down" is OK or even advantageous.

For example, IF the loan rate is low enough AND you're using available cash for down-payment just to avoid being "upside-down" from the start, it may be advantageous to keep the cash working to earn you interest, knowing it's available if the car gets totaled and due to "upside down" the insurance payoff won't cover the loan payoff.

IOW, defer buying-down the loan amount, keep the 'cash' working for you, and factor-in advanced principle payments to reduce life-cycle interest paid net costs, particularly if you tend to keep vehicles longer than the expected actual time to payoff the note.

There's been times when I readily accepted making no / low down payment when offered a 0% or very low % loan under a manufacturer incentive program even knowing I'd be upside-down for a long time. And, as long as the interest payments on that low-rate loan compares favorably with what I can earn on my 'cash', I've made no accelerated principle payments, much to my overall long-term economic advantage.

Just saying that there's some strategies where being upside-down for a while and long-term notes may yield the best life-cycle economics; depends on individual situation, loan, rates, etc.

"Debt" per se isn't necessarily a bad thing as long as you understand how it may be leveraged to advantage over the long-run. Debt you can't resolve when things 'go south', on the other hand, should be strictly avoided (it isn't a valid tool for 'living beyond your means'). IMO.
 
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^^ If you're willing to take those sorts of risks and are diligent enough to constantly monitor your finances and take advantage of such situations, then go for it. However, I'm not one to take chances with being upside down on a car loan. I've never put any money down on any vehicle I've purchased. Mainly because that $4-5k, like you said, could be used more wisely elsewhere rather than buying down a car loan. But, owning $25k on a vehicle that may only be worth $20k at the time gives me anxiety. If that vehicle were to be totaled at any time and you don't have gap insurance, you're pretty well screwed. My wife's Highlander is still worth about $16-17k on a trade and would sell at a dealership for around $20-22k. We currently owe a little less than $10k which will be paid off in about 18 months or less. At least I know if the unthinkable were to happen to that vehicle that we would have a nice insurance check to go find something new.
 

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At this point, I'd throw that money back into the market and take the risk of losing it or turning it into 10k.
 

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However, I'm not one to take chances with being upside down on a car loan. I've never put any money down on any vehicle I've purchased.
If you've never put any money down and are never upside down on a car loan, then you must always be making high-equity, high-value trade-ins with every transaction?
 

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If you've never put any money down and are never upside down on a car loan, then you must always be making high-equity, high-value trade-ins with every transaction?
We typically buy pre-owned vehicles and I'm pretty good at negotiation. I bought my truck via private party for several thousand dollars under its book value. I sold my old Grand Am for $800 and put that money towards paying down the RL. We paid it off fully within three years and I never got anywhere close to being upside down on it. My wife's old Accord sedan was purchased from the dealership at which I used to work. The sales manager was willing to cut me a very good deal because he knew me and the car was getting ready to go to auction. He sold it to me for $500 over his cost which was several thousand off the already lowered asking price. We had a small trade in allowance on my wife's old Saab which helped, too. We paid that car's 5-year loan off in a little over 3 years as well. We put together a good deal on the Highlander, too. We gifted the Accord to my father in law, so we didn't have a trade in. There may have been a time in the first 6 months where were were close to being equal as far as value to amount owed, but we didn't stay there long. It helps that we buy pre-owned vehicles that hold their resale value extremely well.
 

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We typically buy pre-owned vehicles and I'm pretty good at negotiation......
Fair enuf. You're describing a particular set of circumstances as specialized as those I cited, no worries.

Many folks who elect to buy a new car on a loan, even with a trade, find themselves facing an upside-down situation for at least a while due to the 'drive-out-depreciation'.

My original point being: Think about that, consider deferring the additional up-front cash buy-down. IF the worst-case happens, the fact of being upside-down isn't in itself inherently bad when you can put the $ you would put down up-front on the vehicle just to avoid being upside-down to more advantageous work until it is actually needed. If the worst-case (vehicle being totaled) never happens (which is doesn't for the majority of folks), the period of being upside-down has no bearing on anything whatsoever.

Aside, the folks selling vehicle financing will often push extra-cost "GAP" insurance to cover fears relating to being upside-down. Personally, I'm not fan of paying for GAP insurance; IMO if one does not have the financial wherewithal to manage the upside-down risk, either with up-front cash or liquid-reserves available to cover the gap IF the worst-case occurs, then they are probably buying beyond their means.
 

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After truck is paid off, the big key is to keep it as long as possible and keep paying yourself those same payments then pay cash for next truck. See my signature.
Exactly what did after paying off my Acura in 2017. Saved up a nice down payment on my new RTL-E.
 

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Great article. With prices so high now for new cars, I often buy used. But new or used I never borrow more than $15K and I stretch it out 6-7 years so the payments don't exceed $250/mo. That way I can pay it down pretty fast and should I get in a bind, the payment won't kill me. Only time I paid cash was on my 2020 RTL-E, but my trade was paid off and covered most of the nut. Of course the finance office does their best to tack on all sorts of "protection plans" and extended warranties to up the amount if I finance and the pressure for me to buy in is firm, but I just keep saying "no thanks" or "maybe later". Bad enough average cost new is over $30K.
 

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I always take a 48 month loan, however i pay them off in 24-36 months. I have 5 months left on my 2018 that i bought in Oct 2017 and made the first payment in Dec 2017.I hate car payments!
 

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With the low interest offered at the time of purchase, we chose the longer term loan and then will double/triple up on the payments. This is just insurance that if we unfortunately happen to end up in a financial crisis, we can more than likely keep making the required lower payments keeping us out of trouble.

Bill
Exactly what I do. I go as long as I can go and still get a good interest rate (typically 72 months) and make double payments. When I need a little extra money, I can pay the minimum. I typically pay a car off long before the loan term is reached...either by trading the car, or by making extra payments.

I put far too many miles on a car to be a long time owner. About 3 to 4 years is all I ever keep a car. By that time it's got 100k+ miles on it and it's getting to a point where major maintenance items have to be done. I don't want a car payment AND big maintenance costs, so I trade it off.

I view transportation as a "service", just like my cell phone, electricity, water, trash pickup, etc. There is a cost associated with getting where I want to go, and as long as the value that service gives me is greater than the cost I'm okay with it.
 

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I always take a 48 month loan, however i pay them off in 24-36 months. I have 5 months left on my 2018 that i bought in Oct 2017 and made the first payment in Dec 2017.I hate car payments!
I understand you very well. This situation is very familiar to me... I also took a loan last year to buy a car and I am still paying it off. The good part of that situation was that I received money pretty easily and quickly as I applied for the loan on Mogo Kredits ® Aizdevums līdz 15000 € ᐈ Atsauksmes • Kontakti | Credit-10, moreover, I got the loan at a suitable interest rate. It helped me to buy the car that I wanted. However, paying off the loan is not so easy, especially when there are other expenses besides that. Anyway, now I have a car, that's what really matters.
 
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