But lowering your monthly payments by spreading them over a longer period of time is often a big mistake. It can cost you much more money in the long run. And one factor most people don’t notice can make any long-term financing agreement problematic: the rate of the vehicle’s depreciation.
The danger in car depreciation
Every new car depreciates in value once it’s purchased and driven off the dealership lot. Financing a car that depreciates is inevitable.
The problem occurs when the value of your car depreciates faster than you are paying it off. If you end up owing more on your loan than what your vehicle is worth, an accident that totals your car could put you in a serious financial predicament.
That’s because your insurance policy will most likely only cover the value the car is worth at the time of the accident, leaving you with to cover the difference. Depending on the vehicle’s rate of depreciation and the length of your financing agreement, that could be a lot of money.
Other auto financing options