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6 Year Loan For a Honda Civic!

6 month car financing

Courtesy: Hansonhonda.com

I guess I’m out of touch with many consumer issues these days. We haven’t financed anything other than real estate in over 5  years, so I’m not hip on the going rates. I was looking at a newspaper last week and my bottom lip hit the floor when I saw an ad promoting a six year loan payment of $272 per month for a new Honda Civic! What is the world coming to?

Long Term Payments Are Nothing New

Vendors  have been offering extended term monthly payments for years. It doesn’t matter what the sticker price is as long as you make the payments low enough for consumers to think they can afford it. We rationalized ourselves to this philosophy for years. The problem is that once you owe lots of money and have payments, adding a few more seems like no big deal. It’s no big deal until you wake up one day and realize all of your salary is going toward monthly payments.

Car payments used to be no longer than 5 years. If you couldn’t pay off the car in that amount of time, you couldn’t afford it. Then, in the mid 2000’s dealerships started offering longer terms for more expensive cars. I know when we bought our truck in 2006, we took a 6 year loan with a payment of around $430 per month. We didn’t buy it because it was a good deal, we waited until the salesman offered a payment we thought we could afford. Now, you can do this with a Honda Civic, which to me, has always been the symbol of affordability and reliability. I guess that’s no longer true when you buy it on the six year plan.

I Get The Desire For Nice Things

When Jim graduated from college in 2000, the first thing we did after he got his first teaching job was go out and buy a brand new Nissan X-Terra. He’d never had a new car, and we felt like he deserved one. Never mind the fact that he still owed thousands in student loans or that we’d go on over the next decade to become tens of thousands of dollars in debt. We wanted a new car, and it was easy to finance one.

With these long term loans, anyone can finance a vehicle. I’ve known people who claim to be struggling financially, but then go out and buy a new car. I have no idea what they payed or are paying, but the consensus from almost everyone was that the new payment was lower than their old one. I guess if you finance it out for a decade, it will make the payment lower, but you’ll never be out of debt either.

I Guess I’ll Never Have Another New Car

After looking at some of the other ads, I realized the prices of new cars is insane. You can get the same 6 year deal on a new Honda Accord, but for $355 a month. Since no purchase prices were listed,  I went to the dealer’s website to see how much the cars are selling for. You have to call to get actual prices, but using their “How Much Can I Afford” calculator, it seems that Civics are running around $20K and Accords are around $30K. Those are both with a 6.9% interest rate when financing!

The interesting thing about the affordability calculator was that is didn’t take your income into consideration at all. It was just a place where you could put in various down payments and loan terms to get a payment that seemed to fit your budget. That doesn’t tell you how much you can afford. It only tells how much of  payment you want to saddle yourself with.

Since I don’t want a car payment, and it would make me cry to pay $20,000 for a new Civic, I guess I better hope my car lasts for a long time. I know that at some point, it will wear out, and I’ll have to replace it. At this point in my life, I could care less about having a new car. They do smell nice, but after I add a kid and a dog, a car is just a vehicle full of crumbs and doggy drool.

 It’s All About Choices

When I was looking at rental properties with a realtor at the end of last year, I was driving our old beater 1999 Civic. This was a new realtor I was trying, and I only knew her casually. She gave me a strange look when I pulled up in a car that was obviously not what she expected. I’m not sure why I felt the need to explain, but I told her I drove this so that I could afford rental property. We both kind of laughed.

Years ago, that would have embarrassed me. Now it makes me proud. Although it might not seem that way, I really am not judgmental (well, maybe I am just a little bit). I think people should spend their money however they want, but I’m afraid we often spend money we don’t have because we feel like that’s what we’re supposed to do. I’ve been there, and I can speak from experience. It’s all about choices. I’m not going to be able to sleep in my new car when I retire. It won’t buy my meals or pay doctor bills. If you buy a Civic on a six year payment plan so that you can max out your retirement and put all your side income into a SEP IRA, then I think that’s a great. If not, do you really want a tiny car that takes 6 years to pay off?

Did you know “affordable” cars now came with 72 month payment plans? Why are new cars so attractive?

 

 

 

About Kim Parr

Kim Parr is a private practice optometrist, freelance writer, and personal financial blogger. You can follow her journey to 20/20 financial vision at Eyes on the Dollar.

39 comments

  1. There are some financing that goes up to 84 months. Doesn’t matter what type of vehicle affordable or luxury. Many want you to get into the new car regardless of the actual final price including financing.

    • I guess you can finance anything for any amount of time. That whole payments forever strategy wears me out to think about.

  2. I wrote about something similar awhile back and it’s just crazy in my opinion. I’ve read that there are loans going as far as 97 months out…97months! I understand wanting nice things, I really do but if you have to finance it for nearly a decade (and it’s not real estate) I think you have to stop and ask yourself if it’s really worth it. We always used to finance cars, but our goal now is to pay in cash for future purchases.

  3. I think it’s crazy to pay for a car for five years. Six is obviously worse. I think people will extend the payment as long as it takes to lower it enough so they can afford it. Who cares if they ever actually own the car?

  4. I have seen the 6 year terms for some time. I also think the 6.9% rate is outrageous. My wife just got a loan for her car at 1.99% through a credit union. I do know someone who got a car loan for 6 years and then paid it off in less than one. He did it on purpose to get the payment low, but he could already afford it. He just didn’t want to use up all of his available cash.

    • I totally get taking a low rate not to use all your cash. I agree that 6.9 seem high, but apparently that’s actually low if you have bad credit.

  5. I think it is horrific that a car company is allowed to offer a 6 year loan. If you can’t afford to pay off your car before that point, then you shouldn’t get the car. A car is one of the worst investments you can make and you shouldn’t have to make it for 6 years. AndI hate the calculators too, all they do is run numbers without taking into account more to a person’s story (like other debts, income, etc).

    • If I really could not afford to pay cash and had to have a car, I’d buy a really old beater until I could save up for something better. I wasn’t always this way, but new cars have certainly lost their luster in my eyes.

  6. I can relate to the prospect of wanting a new car. I don’t think I deserve it and certainly wouldn’t buy one if I couldn’t afford the hit on depreciation. For me, it’s about ownership, knowing that vehicle has been only mine…that it’s a virgin automobile. Even though a car is an inanimate object, as Americans we do tend to have a relationship with them. That’s why so many of us give them names. (My first was named Ramon…say it with a Spanish accent and tongue roll on the “R”.) Maybe that’s a silly reason but it entices me to own new nonetheless.

    • I don’t think I’ve ever been attached to a car. I would be sad if I had to give mine up right now. I know where all the buttons are and how to set the clock!

  7. It doesn’t even need to be a new car…when we bought our Van in January they offered us a 6 year plan as well.

  8. Yup I knew that. 🙂 I would never buy another new car. It’s just not worth it because they depreciate so much anyway. I think with all the info out there about the history of a car, gently used cars will always be the way I’ll go.

  9. The 6 year car loan is just crazy but they do it because it appeals to the masses. I know many people love it and they just don’t get the fact that it’s a terrible thing. I also can relate to having a new car. I never trust what other owners have done to their cars.

    • I don’t believe I’ll ever have a brand new car again, but who knows? If I do, it sure won’t be on a six year plan.

  10. We have definitely become a nation of payment plans. Six years is crazy, especially for a Honda Civic. No offense to Civic owners, but generally people buy them for their affordability. A six year loan seems to fly in the face of that belief. And the sad part is there is a high probability when they finally own that car, they will turn around a trade it in for another new car. Full disclosure, we do buy new vehicles because that is our preference, even knowing the huge depreciation that occurs the moment we drive off the lot. We pay cash and we drive them for YEARS. We don’t buy new every two years or even every six years. So I understand the desire for a new car. But if it is something that you truly want and desire, you need to make sure you can A) actually afford and need one B) make sure your not harming/delaying/ignoring more important goals and needs.

    • I’ve bought lots of new cars, and they are nice. What you say is so true. Most people think a car payment is a forever expense and don’t ever try to pay one off. Even if you bought a new car on a three year loan and then drove it for 5-7 more years, at least you’d have all those years with no payment.

  11. I’ve heard of the 72 month payment plans and think it’s utterly ridiculous that anyone would fall for it. I have a Honda Accord. I purchased it low mileage used, and negotiated the heck out of the price. At the end I got an Accord with 28,000 miles for 13,900…not too shabby! Ohh yea, and I didn’t get a 72 month loan!

    • That seems like such a more reasonable price than 30K for a new one. That’s practically new at 28K miles for a Honda.

  12. For my part, I don’t want anything that takes six years to pay off. I don’t want any debt. Right now I am basically debt free and just working on getting my savings in order (which means I have none and need more). The idea of paying for a car that will last three to four years with a sx year long seems dumb to me.

    • I’m with you there. Unless it’s a property that will make money for me, I don’t want to pay off anything that is going to be worth much less when I’m done paying for it.

  13. Wes used to work at a car dealership, and 84 month car loans were quite common. It was sad. People would buy crazy expensive cars because the term was so long. They were too focused on the monthly payment.

    • I guess I knew it was possible to finance for a long time. I just didn’t know “cheaper” cars could also be extended for this long.

  14. I love my Civic, but I would never pay $20k for a new one, much less on those terms! That’s insane. Buying a brand new car is a waste in my opinion. I’d rather get one a few years older for a lot less. You’re right, though, people always hone in on the monthly payments. It gives the illusion of affordability to just about everything.

    • I guess I’m naive, but I thought Civics were cheap. I guess all new cars are getting more expensive. I don’t think I’d ever have a new one if that’s the price.

  15. I love what you said about not being embarassed about your car anymore. I drive an beater 1994 Toyota baby truck, and sometimes I am embarassed. But then, I remember that I will be debt-free in just under 3 years and I feel ok again!

    • It makes an old car so much nicer to realize it’s only a means to get from point A to point B. If I ever have to live in my car, I guess I’d wish it was nicer, but until then, it really doesn’t matter if I have a heated steering wheel or a voice that yells at me if I’m about to back into something.

  16. This is crazy! I haven’t been in the car buying loop for sometime, but I remember it was max of 60 months. I guess they longer they extended the more money they can get out of you.

    I happened to be one of those people that gave the car dealership a lot of money in interest… silly me. I don’t think I’m ever buying a new car again and my next car will hopefully be bought cash.

    • I’ve given them plenty of interest over the years too, but I’m determined to never do that again. If it means I’ll always have an old car, that’s OK.

  17. I shudder to tell you but 25.99% is a common APR for consumers with challenged credit even at reputable dealers, and I’ve seen as high as 33%. I’ve also seen as low as 1.95% on used cars too. I’ve sold over 500 cars, and the great majority of people who finance do so for 72 months. Less than 15% of my customers pay cash.

    • Thanks for sharing. I think that should be a huge motivation to work on debt and credit scores before applying for any type of credit. There is no way to ever not be upside down with that sort of interest rate. Do they want people to default on the loan so it can get repossessed?

  18. I can’t believe you have to CALL to get the actual prices. Talk about some shady business.

    • I was a bit surprised at that as well. There were prices for some of the used cars and some models, but all the new Accords and Civics said to call for prices. Salesmen want to get their hooks into you I guess.

  19. Love the way you played off your car with a joke, but interesting how we feel the need to explain thriftiness and frugality. These stories always make me glad not to have to deal with car ownership right now.

  20. I heard a few years ago that the average term of a new car loan was actually 84 months. I heard that while listening to the radio when I was lifting weights. I almost dropped the weight the stat surprised me so much. It just goes to show that the average person will just do whatever they need to – including extending a car loan – to “afford” something.

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